Crops Analysis (VIP) -- October 3, 2012

October 3, 2012 09:46 AM


Price action: Corn futures improved to choppy trade around midday and the market remained in a similar posture into the close. Futures settled 1 1/2 to 2 1/4 cents lower through the July contract, while deferred months were roughly 1 to 3 cents higher.

Fundamental analysis: Corn futures faced pressure overnight and this morning, but around midday, a rebound in soybeans returned some bargain buying interest to the corn market. Hedge pressure is easing now that half the crop out of the field and the market remains concerned about tight supplies.

Ideas the crop may be "less bad" than expected was an early source of pressure, as was news Monsanto expects 2013 corn plantings to again top 96 million acres. But this doesn't change the fact that stocks are tight. Steady to firmer Gulf basis levels today confirms such ideas.

Technical analysis: December corn futures didn't stray far from yesterday's close, leaving near-term support and resistance intact at the September low of $7.05 and Monday's high of $7.68 1/2, respectively.

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 finished well off session lows but could only muster a mixed close. Soybean futures settled 1 cent lower to as much as 13 cents higher in far-deferred contracts. Meal and soyoil futures mildly favored the upside on the close.

Fundamental analysis: After facing active followthrough selling early, soybean futures staged a late-morning rally amid ideas the downside has been overdone. But buying interest was limited late by a sharp plunge in crude oil futures and seasonal pressure from active harvest progress. Soybean yields are generally "better than expected" and FC Stone raised its soybean crop estimate more than traders anticipated.

Some bargain buying also entered the market today. But it's going to take more than bargain pickers for the market to put in a definitive short-term low. Many traders are waiting on China to reenter the export market, which would signal prices have fallen far enough. USDA announced China purchased 21,000 metric tons of U.S. soyoil, which is unusual and likely says more about the availability of soybeans than anything.

Technical analysis: The 9-day Relative Strength Index signals November soybean futures are mildly oversold at just under 30%. That helped trigger a corrective bounce after the contract completed a 50% retracement of the rally from the June low to the all-time high. The July 5 gap from $14.93 to $14.78 is key near-term support. A drop through that level would point to a 62% retracement of the rally around $14.53.

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 improved to mixed trade in late-morning trade. Chicago and Kansas City futures ended mixed, while Minneapolis futures ended slightly higher.

Fundamental analysis: Early pressure in the wheat pit was tied to spillover from soybeans and a lack of fresh news, but as soybeans firmed around midday, wheat followed suit. Traders also view Egypt's purchase of 240,000 metric tons of French and Argentine wheat as supportive as it signals Black Sea-origin wheat supplies have tightened considerably. But the sale also reminds the market that U.S. wheat is not as competitive on the global market, which limited buying in wheat futures.

Traders are also keeping an eye on the weather, which is a mixed bag. Recent rains are encouraging planting of winter wheat in the U.S., but recent warmer and drier conditions in areas of Russia and Ukraine are hampering winter wheat establishment.

Technical analysis: December Chicago wheat ended mid-range and in the lower quarter of the long-lasting consolidation range. Key support lies at the bottom of the range at $8.49 1/4. If this level is violated, it would open significant downside risk, with the next landing area the bottom of the early July gap area at $8.15. Initial resistance is at last week's high of $9.07 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 saw a choppy day of trade, but nearby contracts rallied into the close to finish 24 to 33 points higher. October 2013 cotton ended 53 points lower, with far deferreds up 38 points.

Fundamental analysis: Strength in the U.S. dollar index weighed on cotton futures this morning, but futures saw late short-covering to result in a high-range close. Otherwise, with little fresh news available and China celebrating a national holiday this week (contributing to a lack of fresh news), another choppy day of trade is likely tomorrow unless the weekly export sales data is supportive.

Technical analysis: December cotton managed to pull off an upside day of trade on the daily chart, but it has a lot of work ahead to return to resistance at the August high of 77.49 cents. Initial support lies at this week's low of 70.22 cents and extends to the July low of 69.40 cents and then the contract low of 64.61 cents set in June.

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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