Crops Analysis (VIP) -- October 23, 2012

October 23, 2012 10:08 AM


Price action: December through July futures ended fractionally to 5 3/4 cents lower, with far-deferred contracts fractionally to 1 3/4 cents higher.

Fundamental analysis: Corn futures favored a weaker tone throughout the day, but deferred futures found late-session spillover support as soybean futures came off their lows. Negative outside markets tempered buying throughout the day. This was reflected by sharp daily losses in the Continuous Commodity index, as it slipped to a monthly low.

While country basis levels are firming due to the overall tightness of supplies, the lack of fresh demand news limits traders' bullish enthusiasm. Historically high prices have end-users seeking alternative to corn.

Technical analysis: December corn posted a downside day of trade on the daily chart, but closed mid-range. Near-term boundaries are support at the October low of $7.32 1/4 and resistance at the October high of $7.76. A move through either level could be telling of near-term direction.

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 faced heavy pressure in early trade, but the market improved around midday and extended gains into the close to settle steady to 6 3/4 cents higher through the September contract. Far deferred months closed 2 cents lower. Soymeal ended mostly moderately higher while soyoil finished with moderate losses.

Fundamental analysis: Early in the session, soybean futures faced heavy profit-taking pressure due to strong gains in the U.S. dollar index and sharp losses in the stock market and crude oil futures. Broad risk aversion stemmed from renewed economic concerns in Spain and disappointing U.S. earnings reports.

But ideas the downside had been overdone considering the tight supply situation encouraged bargain buying late in today's session. Basis levels around the country have remained historically strong thanks to limited supplies and strong demand.

Technical analysis: November soybean futures continue to chop around last Thursday's close. The market needs closes above the Oct. 9 high of $15.74 or below the October low of $14.85 3/4 to signal a breakout has occurred.

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 settled 3 1/2 to 9 1/2 cents lower in Chicago, mostly 1/2 to 8 cents lower in Kansas City and around 2 to 3 cents lower in all but the far-deferred contracts that were firmer in Minneapolis. Chicago and Kansas wheat futures finished mid-range, while Minneapolis wheat closed high-range.

Fundamental analysis: Wheat futures got caught up in the broad, risk-off move in the investment world today. Despite heavy outside market pressure, wheat was able to rebound well off session lows into the close as corn trimmed losses and many of the soybean contracts worked higher.

The rise in the U.S. dollar today sparked concerns about export demand. While Black Sea origin exports are expected to be exhausted soon, U.S. wheat is not competitively priced on the global market. Unless that changes, there are other countries, like France, Australia, Argentina and Canada that will benefit first from reduced Black Sea exports. As a result, movement in the U.S. dollar index will continue to be closely monitored.

Technical analysis: December Chicago wheat futures remain in the broad, sideways-to-modestly lower range. Key near-term support lies 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 closed 143 to 266 points lower, with the December contract leading today's price plunge.

Fundamental analysis: Cotton futures were pressured by a broad-based risk-off move in the investment world today, as the U.S. dollar was sharply higher, while stocks and commodities faced widespread pressure. Most damaging for cotton were strong gains in the U.S. dollar index because of its relatively direct impact on export demand.

With today's sharp price drop, it's clear last week's short "squeeze" amid tight certified stocks has been exhausted and traders are refocused on bearish long-term fundamentals.

Technical analysis: Last week's failed upside breakout above the summer highs in December cotton futures signals a short-term top is in place. Last week's high at 79.19 cents is near-term resistance. Near-term support lies at the Oct. 1 low of 70.22 cents.

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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