Crops Analysis (VIP) -- November 8, 2013

November 8, 2013 09:03 AM


Price action:
Corn futures had a "buy-the-fact" reaction to this morning's USDA report data and finished 6 to 7 cents higher, which resulted in bullish reversals (key reversals in some contracts). Corn futures extended the price slide, but finished near unchanged for the week.

5-day outlook: Today's bullish price response to a bigger crop estimate and 2013-14 carryover projection may be enough to spark followthrough buying early next week. And it may be enough to help the corn market put in a seasonal low. But we aren't looking for a sharp price rally unless funds decide to actively cover some of their record short position.

30-day outlook: Bullish demand news is needed to fuel an extended price recovery. But given that traders have generally ignored very strong export demand news over the past month, even that may not be enough to entice sustained buying interest.

90-day outlook: The good news for the corn market is that lower prices are rebuilding the demand base that was slashed by the runup to record highs in the summer of 2012. USDA increased its 2013-14 total use projection by 275 million bu. from September. The true test of whether demand is rebuilding or if end-users are simply responding to a "value buying" opportunity will be if the recent pickup in demand persists if prices firm.

Hedgers: 25% of 2013-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 25% of expected 2013-crop production is sold via forward contract for harvest delivery.




Price action: Soybean futures traded higher most of the day and surged following the release of USDA's November crop reports. Soybean futures closed 13 1/4 to 29 1/2 cents higher, finishing near their highs for the day. January futures led gains and finished 44 1/2 cents higher versus a week earlier.

5-day outlook: January soybean futures surged to finish the week, but needs a close above $13.21 3/4, the October high, to confirm a bottom. Basis has held firm recently and should remain firm as harvest is nearly complete. Therefore, there are increasing signs of a seasonal low being in place.

30-day outlook: Export news will drive prices going forward. Recent news has been quite positive. But it will take a steady dose of strong export news to support prices as traders already have high exports factored into prices. Swings in the value of the U.S. dollar could prove critical as the market works on putting in it fall low.

90-day outlook: The supply and demand balance is reasonably known now with the release of the November Crop Production and Supply & Demand Reports. Traders expect exports to be positive going forward and have priced that demand into prices. It will take a new demand surge or a sudden drop in the dollar to turn trader heads and send prices sharply higher. Meanwhile, the market knows a record-large South American crop is expected. That could serve as a wet blanket on any spike in prices.

Hedgers: Get to 100% sold in the cash market on 2013-crop production. We'll manage risk on the board the remainder of the marketing year.

Cash-only marketers: Get to 75% sold on 2013-crop production.




Price action: SRW, HRW and HRS wheat futures finished slightly lower in most contracts today. For the week, all three flavors extended the recent price slide and finished near weekly lows.

5-day outlook: Bears have momentum, suggesting additional price pressure is likely next week. To stop the price slide, there either needs to be some bullish demand news or the corn market must signal a seasonal low is in place. With U.S. wheat prices not overly competitive at the moment, wheat likely needs help from corn to generate buying interest -- and that also seems like a stretch.

30-day outlook: The U.S. winter wheat crop is off to a favorable start. Plus, crop concerns in Ukraine, Russia and Argentina have faded. With the no global supply concerns, the upside will remain limited to corrective buying.

90-day outlook: A strong start for the U.S. winter wheat crop gives traders no reason to be concerned about yield prospects at the moment. But the crop is far from made. Winter weather, and more so springtime conditions. will ultimately determine yields. A weather market could still develop, though that appears to be much further down the road.

Hedgers: 75% sold on 2013-crop in the cash market. No 2014-crop sales are advised.

Cash-only marketers: 50% sold on 2013-crop. No 2014-crop sales are advised at this time.




Price action: December cotton futures closed modestly higher today, while deferred contracts posted slight losses. For the week, cotton futures extended the price slide but finished well off session lows.

5-day outlook: The market hinted this week that a short-term low may be in place. To confirm a low, futures must show strength early next week, which will require funds, who have been sellers recently, to return to the buy side of the market. That may be difficult as bullish news is lacking, suggesting buying interest is likely to be limited to short-covering for now.

30-day outlook: Traders are concerned about Chinese demand. China is sitting on over half of global cotton supplies and may choose to sell some of those stocks onto the domestic market, which would lower demand for cotton imports. A decision on this front should be known by the end of the month.

90-day outlook: Domestic cotton carryover is projected to decline by 900,000 bales in 2013-14, but global ending stocks are forecast to rise 7.65 MMT to a record 95.71 MMT. With that much global supply, it's hard to be bullish cotton.

Hedgers: Profits have been claimed on all hedges. 50% of expected 2013-crop is sold in the cash market.

Cash-only marketers: 50% sold on 2013-crop production.


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