Crops Analysis (VIP) -- October 24, 2012

October 24, 2012 09:59 AM


Price action: December corn futures ended 1 1/2 cents lower and the March contract was steady while deferred futures settled fractionally to 5 1/4 cents higher.

Fundamental analysis: Corn futures lacked buying interest today due to a lack of bullish news, but spillover support from soybeans and wheat kept the market from sliding. While corn supplies are tight, traders are concerned about the demand side of the market as high prices have slowed used and caused end-users to seek alternatives.

While futures remain choppy, the recent recovery in basis continues, as farmer selling is light and there's enough end-user demand amid tight supplies to keep the cash market strong. Basis strength limits downside risk in corn futures.

Technical analysis: December corn remains in the short-term, choppy range from $7.32 1/4 to $7.76. A downside breakout from that range would have bears targeting the September low at $7.05. An upside breakout would make the psychological $8.00 mark bulls' target.

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 ended widely mixed. November through March futures closed 16 1/4 to 17 1/4 cents higher. May and July futures were 4 1/2 to 8 3/4 cents higher, and far-deferred contracts were down 3/4 to 3 1/2 cents. Meal also ended mixed, with soyoil stronger.

Fundamental analysis: Early support in the bean pit was tied to fresh demand news, as USDA announced 105,000 MT of beans were sold to unknown destinations for 2012-13. Traders look for tomorrow morning's sales report to show an uptick from the previous week's pace, which, if realized, would remind traders current prices are not adequately rationing use.

Traders are also keeping an eye on the weather situation in South America, as it calls for much-needed rains in Mato Grosso, Brazil, where planting is lagging last year's pace. This pressured deferred futures, as traders expect a more ample supply situation next year.

Technical analysis: November soybean futures have posted three consecutive day of gains and have turned the psychological $15.50 level into support. The contract has completed a 25% retracement of the decline from the September high to the October low, marking $16.00 as next resistance, which aligns with a 38% retracement.

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 enjoyed gains throughout today's session and ended roughly 15 to 16 cents higher in Chicago, mostly 8 to 13 cents higher in Kansas City and mostly 7 to 13 cents higher in Minneapolis. This represented a close in the upper half of today's trading range.

Fundamental analysis: Wheat futures benefited from improved outside markets compared with yesterday's broad risk aversion thanks to a reminder of tightening wheat stocks. Ukraine's ag minister confirmed the country will ban grain exports as of Nov. 15, though a spokesman for the prime minister later said the country has not made an official decision on the matter. We expect a ban to occur. And regardless, dwindling supplies from the Black Sea region will force the area to drop out of the export sphere soon, likely boosting demand for U.S. wheat.

Meanwhile, dryness concerns persist in the U.S. Plains, where winter wheat emergence continues to lag the five-year average despite a normal planting pace.

Technical analysis: December Chicago wheat futures have pushed into the upper end of the broad, downtrending channel. The top of that channel intersects around $9.15 Thursday and declines around 1/2 cent every day thereafter. The Oct. 15 low at $8.40 1/4 is key near-term support, with the bottom of the downtrending channel around $8.26 Thursday.

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 faced heavy selling pressure again today and ended low-range with losses ranging from 79 to 160 points. Nearby contracts were the downside leader.

Fundamental analysis: Cotton futures saw followthrough selling pressure today, but losses were less severe than yesterday. Traders view the rally on tight certified stocks as being overdone. They also expect tomorrow's export sales data to show limited cotton demand.

But losses were kept in check by news China's cotton imports for September of 262,914 MT were up 4% from year-ago and improved risk appetite for commodities.

Technical analysis: Support for December cotton futures lies at the October low of 70.22 cents. The September high of 77.29 cents is near-term resistance.

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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