Crops Analysis (VIP) -- October 26, 2012

October 26, 2012 09:32 AM


Price action: Corn futures slipped through the week and ended near the monthly lows, but avoided doing any technical damage.

5-day outlook: A lack of fresh news limited buying in the corn market this week, so a continuation of that trend next week could do some chart damage. December corn must respect support at the October low of $7.32 1/4 to avoid a potential drop to the September low of $7.05. If demand concerns continue, it would continue to weaken futures.

30-day outlook: The combination of slow export demand and reduced ethanol production signals high prices are rationing supplies. The saying "short crop, long tail" refers to demand destruction and the gradual decline in prices. Without fresh demand news, the markets' upside potential will continue to be limited.

90-day outlook: Too much rain across Argentina's grain belt and southern Brazil has led to planting delays and could result in some acres being switched to soybeans as the optimal planting window closes in early November. This could put more pressure on the U.S. to increase acres for 2013, although that could be difficult if soybeans rally. Acreage rotations also pose a threat to U.S. corn acreage expansion.

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: November through March soybean futures closed slightly lower while far-deferred contracts posted slight gains. For the week, soybeans extended the price recovery from the mid-October lows.

5-day outlook: With harvest virtually complete, focus in on demand, specifically Chinese buying. If there's fresh export demand next week, soybean futures will make another run at the upside, which would confirm a short-term low is in place. If fresh demand news is lacking, soybeans may struggle to find sustained buying interest.

30-day outlook: In addition to demand, traders will closely monitor the South American growing season. While record production is still anticipated, there are some potential weather concerns as conditions are too dry in central and eastern Brazil, which is slowing the planting pace. Of course, planting delays in southern Brazil and Argentina could cause some intended corn acres to be switched to beans.

90-day outlook: The slowed planting pace in Brazil means the start of their export season will be pushed back. Given tight U.S. supplies, that increases odds demand will remain supportive.

Hedgers: 100% sold on 2012-crop in the cash market. No futures/options positions at this time. No 2013-crop sales advised yet.

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




Price action: Wheat futures weakened into the close to post slight losses for the week. Futures continue within the boundaries of the gradual downtrending channel established from the July high. Wheat tested the top of the channel mid-week before softening.

5-day outlook: While fundamentals are improving due to tightening stocks in the Black Sea region, wheat continues to struggle to rally on its own. Back-to-back stronger-than-expected weekly export sales reports show importers are seeking U.S. supplies, but traders want to see sustained demand improvement before sharply extend gains.

30-day outlook: Global weather conditions are being monitored as moisture is needed in many areas of the world, including Australia, the U.S. Southern Plains and the Black Sea region. If these crops go into dormancy in tough shape it will keep crop concerns in the spotlight through winter.

90-day outlook: There is no quick fix for the euro-zone. As a result, global economic concerns will continue to bring periods of price pressure. But if a corn/soybean acreage battle heats up this winter, wheat would benefit from spillover support.

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 finished slightly lower in most contracts today following a light and choppy session. For the week, cotton futures posted sharp losses.

5-day outlook: Cotton futures are trading at a level that has attracted buying in the past. For a fresh wave of buying to surface, however, a shot of fresh demand news is needed. Without supportive demand news, price action is likely to be choppy and bears may take a shot at trying to violate support.

30-day outlook: With bearish fundamentals priced into the market, downside risk should be limited unless global economic concerns heighten. Traders will continue to closely monitor U.S., euro-zone and Chinese economic data.

90-day outlook: China's manufacturing sector is showing signs of stabilizing. But with the euro-zone continuing to struggle, a sharp increase in Chinese textile production and exports is a long shot. And with China sitting on roughly 40% of the world's cotton stocks, it's unlikely China will be an active buyer of U.S. cotton -- or cotton from anywhere else for that matter.

Hedgers: 50% priced on expected 2012-crop production via cash forward contract for harvest delivery. A breakout from that range is needed to spark a trending move.

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


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