Crops Analysis (VIP) -- October 12, 2012

October 12, 2012 09:39 AM


Price action: Corn futures erased more than half of yesterday's gains, with nearbys ending around 20 cents lower. For the week, corn ended in line to slightly above last week's closing levels to maintain the recent choppy consolidation range.

5-day outlook: This week's price action proves traders will react to bullish data, but the lack of followthrough buying suggests bullish fundamentals are factored into prices. Plus, this week brought reminders of demand destruction as weekly export sales were very disappointing. Sustained price strength needs to come from strong end-user buyer as the focus has shifted from the supply side of the balance sheet to demand.

30-day outlook: Also, there are more indications end-users are seeking alternative to U.S. corn, as wheat-for-feed usage has increased. Combined with global macro-economic woes, it will be difficult to generate sustained buying in the corn market -- leading to a continuation of the choppy price trend.

90-day outlook: The inability of El Nino to develop is raising concerns about prolonged drought across the Corn Belt. A dry soil moisture profile throughout the winter would be alarming as this year's crop at least got off to a strong start.

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 posted losses of 25 to 28 3/4 cents in the November through August contracts today to finish near weekly lows.

5-day outlook: The poor close to this week gives bears momentum for next week. If key near-term support at the Oct. 3 lows is violated, soybean futures will be vulnerable to another round of heavy, technical-based selling. From a fundamental perspective, traders want to see China step in as an aggressive buyer of U.S. soybeans to signal prices have fallen far enough.

30-day outlook: The sharp increase in the U.S. soybean crop in October suggests the estimate will get bigger again in November. But any increase in crop size is likely to be completely offset with higher usage projections, as was the case this month.

90-day outlook: The odds of El Nino are quickly fading and there's even some talk La Nina could return. If that's the case, it would likely mean South American production wouldn't recover nearly as much as anticipated and could have ramifications for next year's U.S. crop. Another weather scare would potentially be highly price-supportive given tight supplies.

Hedgers: 100% sold on 2012-crop in the cash market for harvest delivery. The Nov. $14.00 put options purchased for 42 3/8 cents on 25% of 2012-crop should be held as a crop insurance hedge.

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




Price action: Wheat futures faced heavy profit-taking pressure today to wipe out all of yesterday's gains. Futures finished 20-plus cents lower for the day and near steady with last Friday's close.

5-day outlook: Wheat will likely trend sideways within its choppy, extended price range over the near-term, as it does not yet have the ability to post a strong rally without the support of corn. And corn has struggled to rally even with a bullish news due to demand destruction.

30-day outlook: But global wheat stocks are tightening, which will keep a floor under the wheat market and could eventually lead to an upside breakout from the consolidation range, as this should give U.S. wheat a demand boost.

90-day outlook: Given tighter global stocks, dryness in the U.S. Southern Plains will gain more attention, especially considering that hoped-for moisture associated with El Nino conditions is appearing less likely to occur. Plus, the Black Sea region is expected to run out of exportable supplies into year-end which will boost demand for U.S. supplies.

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 enjoyed mild corrective short-covering to finish 35 to 51 points higher for the day but slightly lower for the week.

5-day outlook: USDA's report data yesterday worsened the outlook for cotton as its production estimate and carryover projection for the U.S. topped expectations and came in above both month- and year-ago. Plus global carryover for 2012-13 is expected to be 9.55 MMT above 2011-12. Plentiful supplies and weakening demand give bears the advantage.

30-day outlook: China has remained a buyer on any price dip, which should prevent any steep declines in cotton prices. But traders will keep an eye on the economic situation in China and elsewhere as any further global economic slowdown could trim demand for the fiber and open more downside price risk.

90-day outlook: High grain and soy prices make it likely cotton will lose acres to these crops in the U.S. and elsewhere next year. This will keep a floor under cotton prices.

Hedgers: 50% priced on expected 2012-crop production via cash forward contract for harvest delivery.

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


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