Crops Analysis (VIP) -- October 9, 2012

October 9, 2012 09:45 AM


Price action: The corn market enjoyed gains much of the session, but bears gained some traction heading into the close. Futures ended steady to 3 cents higher for the day, which was low-range for the day.

Fundamental analysis: The corn market enjoyed corrective short-covering most of the day as traders continued to ready positions for what is expected to be friendly USDA reports Thursday. But strength in the U.S. dollar index and general hesitation toward adding risk ahead of the report caused futures to soften into the close.

In addition, a disappointing weekly export sales tally and news South Korea bought South American corn today reminded traders that demand destruction has occurred.

Technical analysis: December corn futures nearly matched yesterday's trading range and close. The $7.40 area stemmed losses the past two days, marking it as near-term support, followed by the September low of $7.05. The October high of $7.68 1/2 is initial resistance.

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 gains erode into the close. November beans ended 1 cent lower, with most other contracts ending 1 to 2 cents higher. Meal ended weaker, with soyoil able to hold onto slight gains.

Fundamental analysis: Early gains were tied to short-covering, but buying interest eroded as focus returned to the macro-economic picture. The U.S. dollar index posted sharp daily gains after the International Monetary Fund lowered its forecast for global economic growth.

Meanwhile, this morning's weekly export inspections report showed inspections above expectations and cumulative inspections well ahead of what's needed to reach USDA's export forecast. This should serve as a reminder that prices have not slowed export demand. Traders look for USDA to raise its crop projection on Thursday morning, but carryover is still projected to be down from last marketing year.

Technical analysis: November soybean futures posted a weekly high of $15.74 but then ended just off session lows. Futures must respect support at last week's low of $15.04 to signal the market is working on a near-term low.

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: Nearby wheat futures favored a firmer tone though the day and ended mid-range. Chicago and Minneapolis futures ended mostly 2 to 4 cents higher, with Kansas City up 4 to 6 cents.

Fundamental analysis: Global crop concerns supported nearby wheat futures, as the inability of El Nino to develop has increased concerns about crops in areas like Australia. Dry conditions in areas of Ukraine and Russia are also hindering development of winter wheat, and the U.S. Southern Plains are also in need of more rain.

Tomorrow, traders will focus on evening positions ahead of USDA's Supply & Demand Report to be released on Thursday morning. This should help to limit price pressure, as traders look for USDA to trim 2012-13 carryover. However, if the U.S. dollar index continues to strengthen, it will limit overall buying in the commodity sector.

Technical analysis: December Chicago wheat futures saw trade above yesterday's high of $8.67 1/2 but settled in the lower third of today's range. Near-term boundaries are support at the September low of $8.49 1/4 and resistance at the late September high of $9.07. Violation of support would open fresh downside risk as it would signal a downside breakout from the extended, choppy range.

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 settled mid- to low-range with gains of 6 to 15 points.

Fundamental analysis: Cotton futures benefited from news China's top economic planner says the country will harvest 6.9 MMT of cotton this year, which is down 4.2% from year-ago. This ups the odds China will remain an active buyer on any price dips, though it will not issue any additional import quotas this year and it left its 2013 low-tariff import quota unchanged at 894,000 MT.

Interest in adding long or short positions remains limited ahead of Thursday's Supply & Demand Report from USDA.

Technical analysis: December cotton futures continue to consolidate in a very narrow trading range, marked by the October low and high of 70.22 cents and 72.65 cents, respectively.

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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