Crops Analysis (VIP) -- October 15, 2012

October 15, 2012 09:36 AM


Price action: Corn futures faced pressure throughout the day and softened late in the session to end around 15 cents lower through the July contract, while deferred months were roughly 5 to 11 cents lower for the day.

Fundamental analysis: Corn futures lacked fresh fundamental news today, which left it vulnerable to spillover pressure from heavy soybean losses and fund-based selling amid a firmer U.S. dollar index. Today's export inspections report was largely a non-event for corn as the tally matched expectations and was in line with last week.

Adding to the negative tone, traders still have last week's reports that livestock and poultry producers in southeastern regions of the U.S. are importing corn from South America as a cheaper alternative to U.S. supplies on their minds.

Technical analysis: December corn futures settled near last week's pre-report levels, signaling more choppy price action likely lies ahead. Futures are oscillating between the September low of $7.05 and the October report reaction 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 closed 20 1/2 to 30 1/4 cents lower through the August 2013 contract, which was low-range but off session lows. Far-deferred contracts posted losses in the teens. Meal and soyoil also posted hefty price declines.

Fundamental analysis: Soybean futures faced seasonal selling pressure as yields continue to generally top expectations, which USDA confirmed with its upwardly revised crop estimate last Thursday. Expectations for record South American soybean production are also weighing on the market. Rains fell on some areas of Brazil over the weekend and more precip is forecast for central and northern soybean growing regions this week. And while Argentina has been too wet for producers to get into fields, the wet soils will be good for early crop establishment once the crop is planted.

Traders ignored demand news today, which was mostly bullish. Chinese soybean imports remain strong and are expected to continue at a brisk clip. Also, weekly export inspections were very strong, maintaining a pace that's well ahead of what's required to hit USDA's export forecast. Also, NOPA crush data for September was right in line with expectations at 119.7 million bu., although it was down 4% from August.

Technical analysis: In addition to the fundamental pressure, soybeans also faced technical selling today. November soybean futures plunged through initial support at $15.04, which triggered sell stops. After that, the contract entered the July 5 gap from $14.93 to $14.78, but failed to fill it. Filling that gap is bears' next objective.

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 closed mostly around 8 cents lower in Chicago, mostly around 7 to 9 cents lower in Kansas City and mixed with a downside bias in Minneapolis.

Fundamental analysis: Wheat futures faced constant spillover pressure from the corn and soybean markets today. In addition, the U.S. dollar index was mildly firmer for much of the day, which encouraged speculative-based selling, especially given the active fund selling in the corn and soybean markets.

Weekly export inspections were also disappointing at only 7.003 million bu., which reminded traders U.S. wheat is not competitively priced on the global market. The demand picture should brighten the second half of 2012-13, but for now there are still plenty of countries with wheat priced cheaper than the United States.

Technical analysis: December Chicago wheat futures posted a potential downside breakout from the extended, sideways trading range today. A close below today's low at $8.40 1/4 would give bears the technical upper hand and open downside risk to the $8.16 to $8.15 area.

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 settled high-range with gains of 79 to 104 points through the May 2014 contract.

Fundamental analysis: Cotton futures benefited from corrective short-covering today, as well as ideas demand from China may not be as low as USDA projected last week. Today, the market learned that while China's inflation is easing, possibly opening the door for more monetary easing, its trade data strengthened. This bodes well for cotton, as China is a major buyer of the fiber.

Plus, cotton supplies will likely be less plentiful in the next growing season as attractive corn and soybean prices are expected to woo acres away from cotton.

Technical analysis: December cotton futures remain within the range that has bound action since late September, the boundaries of which are the October high and low of 72.65 cents and 70.22 cents, respectively.

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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