Crops Analysis (VIP) -- November 6, 2012

November 6, 2012 09:23 AM


Price action: Corn futures were slightly higher throughout the day on short-covering, positive outside markets and spillover from double-digit gains in the soybean market. Corn ended mostly 4 to 5 cents higher.

Fundamental analysis: Weakness in the U.S. dollar triggered widespread buying in the commodity world, including corn. Some additional support came from concerns rain-related delays in Argentina increase yield risks and the likelihood unplanted acres will be shifted to soybeans or not planted at all. But given a lack of demand news, traders are hesitant to add long positions.

Traders are also moving to the sidelines ahead of Friday's November Crop Production and Supply & Demand Reports. According to the average pre-report guess, traders look for USDA to trim the size of the corn crop slightly from last month, although due to lackluster demand, traders expect 2012-13 carryover to be increased slightly.

Technical analysis: December corn futures posted an inside day up on the daily chart. The high-range close gives bulls the upper hand heading into overnight trade. Near-term boundaries are support at the October low of $7.32 1/4 and resistance at the October high of $7.76.

Hedgers: 100% sold on 2012-crop in the cash market -- 90% for harvest delivery; 10% for March 2013 delivery. Also, Dec. $6.50 put options, which were purchased on 40% of 2012-crop for 31 1/2 cents, are held as a crop insurance hedge.

Cash-only marketers: 75% sold on 2012-crop -- 50% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.




Price action: Soybean futures finished 8 1/2 to 12 1/2 cents higher, which was near the middle of today's trading range.

Fundamental analysis: Soybean futures were supported by short-covering today amid ideas sharp losses the past two sessions were overdone. Price-friendly outside markets were also supportive as traders took a risk-on stance.

Soybean traders are also keeping a close watch on the South American situation. While rains in central and eastern Brazil (northern production areas) should help recently seeded crops and promote more planting, there are growing concerns in Argentina's key production region, where soils remain saturated. Reports that Oil World said Argentine soybean production could fall by 3 MMT to 6 MMT from previous forecasts of 55 MMT to 56 MMT due to the very wet conditions caught traders' attention.

Technical analysis: January soybean futures remain pinned within the October trading boundaries from $14.84 and $15.77. A breakout from this range is needed to fuel the next trending move.

Hedgers: 100% sold on 2012-crop in the cash market. No futures/options positions at this time. No 2013-crop sales advised yet.

Cash-only marketers: 75% sold on 2012-crop production for harvest delivery.




Price action: Wheat futures closed 5 to 11 cents higher in Chicago, mostly 5 to 10 cents higher in Kansas City and 5 to 9 cents higher in Minneapolis. That was an upper-range close at all three exchanges.

Fundamental analysis: Wheat futures were supported by the drop in U.S. winter wheat crop condition ratings, specifically conditions with the HRW crop in the Plains, in yesterday afternoon's update from USDA. With forecasts calling for dry conditions the next two weeks throughout the Plains, traders expect further crop declines. Despite the HRW crop struggles, it's hard to get traders too concerned with crop conditions in the fall.

Additional support came from outside markets amid a general risk-on move today as market should get some closure to the presidential election tonight. The U.S. dollar index was weaker, while many commodities were firmer and the stock market was higher.

Technical analysis: The Oct. 24 high of $8.95 is initial resistance for December Chicago wheat futures. The top of the downtrending channel from this summer's highs currently intersects around $9.10. To the downside, initial support is at last week's low of $8.52 3/4, followed by the October low at $8.40 1/4.

Hedgers: 75% cash sold on 2012-crop in the cash market.

Cash-only marketers: 75% of 2012-crop production is sold.




Price action: Cotton futures started the day on a positive note thanks to help from supportive outside markets, but buying dried up and futures drifted lower. In the end, cotton finished mostly 22 to 45 points lower.

Fundamental analysis: Weakness in the U.S. dollar index triggered early buying in the commodity world, with the Continuous Commodity Index posting a sharp daily gain. But this only provided temporarily support for cotton futures, as traders returned their focus to the plentiful supply situation. Cotton futures didn't stray too far in either direction today, which could continue to be the case as traders even positions ahead of Friday's USDA Crop Production and Supply and Demand Reports.

Technical analysis: December cotton briefly traded above the 71.00-cent level, but then tested 70.00 cents and closed just above it. Last week's low of 69.66 cents is initial support, followed by the July low of 69.40 cents. Contract-low support lies at 64.61 cents.

Hedgers: 50% priced on expected 2012-crop production via cash forward contract for harvest delivery. A breakout from that range is needed to spark a trending move.

Cash-only marketers: 50% priced on expected 2012-crop production via forward contract for harvest delivery.


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