Crops Analysis (VIP) -- October 5, 2012

October 5, 2012 09:49 AM


Price action: Corn futures were little changed from last week's close as the market chopped sideways this week. Today, futures ended around 7 to 9 cents lower through the September 2013 contract, while far-deferred contracts were mostly 1 to 3 cents lower.

5-day outlook: Traders will ready positions for USDA's Crop Production Report next Thursday. A higher production peg from Informa Economics today along with some anecdotal reports of "better-than-expected" yields has most traders expecting USDA will unveil a slightly larger corn crop estimate.

30-day outlook: A very fast harvest pace means the size of the 2012 crop will be known much earlier than usual. This, in turn, means attention will shift to demand earlier than usual. It is obvious that demand has slowed -- but the question remains about whether it has slowed use "enough" given tight supplies.

90-day outlook: Tight supplies will keep a floor under the market but concern about demand destruction could also limit the upside. The expression "short crop, long tail" is in the back of some traders' minds. It is a reference to the fact it takes a long time to rebuild a demand base after a supply crunch leads to a sharp price rally. The South American growing season will also be in focus as the small U.S. crop places more importance on production elsewhere.

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 saw a choppy day of trade today and favored a weaker tone on the close. For the week, soybeans posted losses and extended the decline from contract highs. November beans ended the week about 50 cents below last week's close.

5-day outlook: Traders had plenty of demand news to digest this week, but instead focused on reports of "better-than-expected" yields. Focus in the market next week will be on evening positions for Thursday's Crop Production Report. Even if USDA raises the size of the soybean crop from last month, carryover could still tighten as exports are running WELL ahead of the pace needed to reach USDA's export projection.

30-day outlook: Timely rains encouraged Brazilian producers to begin planting late last month, but hot temps in Mato Grosso have dried field conditions and slowed planting. With El Nino hopes fading, all eyes will be on the weather in South America through the fall and winter.

90-day outlook: The battle for 2013 U.S. acreage should be fierce and has already begun. Currently, December 2013 corn futures have the edge over November soybean futures.

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 lower today, with nearby Chicago contracts posting 10- to 11-cent losses to lead the decline. For the week, wheat futures posted sharp losses, but remained within the boundaries of the extended, choppy trading range.

5-day outlook: USDA will update its 2012-13 balance sheet for wheat, including the final 2012-crop production estimates from the Annual Small Grains Summary that was released Sept. 28. Much of the report reaction, however, is likely to come from the corn and soybean markets, with wheat likely to be a follower.

30-day outlook: Wheat exports from the Black Sea region are expected to slow dramatically by November. That opens the door to more export demand for U.S. wheat, although U.S. prices are still not competitive on the global market. Countries like Australia and France are more likely to get the bulk of the business over the U.S. at first.

90-day outlook: Recent rains have improved topsoil moisture for some areas of the Central and Southern Plains. That should be enough to trigger solid crop emergence. But subsoil moisture is lacking and with El Nino in limbo, there are limited prospects for longer-term drought relief. Still, it would take really poor fall conditions to get traders overly concerned.

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 slightly lower today, but managed modest gains for the week following five days of light and choppy trade.

5-day outlook: More light and choppy price action is likely the first three days next week as traders await USDA's updated crop estimate Thursday morning. USDA's crop estimate and 2012-13 domestic and global balance sheets will set the price tone late next week.

30-day outlook: While traders' short-term focus is on supply/demand fundamentals, a lot of the longer-term price direction in the cotton market will come from the global economy. The sluggish global economy caps upside potential for cotton futures.

90-day outlook: Chinese cotton imports are expected to decline by more than 50% in 2012-13 as demand for its textiles is reduced by the weak global economy. That's price-negative, but China has proven it will be a value buyer on price breaks. That limits downside risk.

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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