Crops Analysis (VIP) -- September 14, 2012

September 14, 2012 09:53 AM


Price action: Corn futures enjoyed an upside day of trade and ended roughly 5 to 8 cents higher for the day but down slightly for the week. September futures expired at $7.77 1/2.

5-day outlook: Corn futures showed signs of a short-term top after USDA released larger-than-expected supply estimates, but the Fed's decision to launch a third round of quantitative easing Thursday made another move to the upside a very real possibility. The resulting U.S. dollar index weakness could encourage foreign end-users to cover their near-term needs. Considering tight supplies, more rationing may be needed.

30-day outlook: Harvest pressure will limit the corn market's upside potential in the months ahead until at least half the crop is in the bin. But this year, the pressure will be less prominent due to the tight supply outlook. Traders will also have the Sept. 28 Quarterly Grain Stocks Report to digest, which will likely favor market bears because the advanced state of the crop means new-crop supplies will be mingled with old-crop corn.

90-day outlook: With the size of the U.S. corn crop known, focus will be on finding a price that will make it last. Stimulus measures from Europe and the U.S. have improved investor risk appetite, which could mean more rationing will be needed. But the longer prices remain high, the more difficult it will be to restore our demand base.

Hedgers: 40% of expected 2012-crop production is covered in Dec. $6.50 put options for 31 1/2 cents. 35% cash forward sold on expected 2012-crop production -- 25% for harvest delivery; 10% for March 2013 delivery.

Cash-only marketers: 35% forward priced on expected 2012-crop production -- 10% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.




Price action: Nearby soybean futures posted slight gains for the week, with deferred futures posting strong gains. March soybean futures posted a contract high of $17.28 1/4 today before ending the day near session lows on late profit-taking.

5-day outlook: Traders had a lot of news to digest this week as USDA reminded the market of the tight stocks situation and the Federal Reserve's move to stimulate the economy resulted in sharp weakness in the U.S. dollar index. Those factors will remain on traders' minds as they return next week, with the market's job being to find a price that rations use.

30-day outlook: Traders will also keep a close eye on weather in South America, as tomorrow is the first day producers can begin planting. But given too-dry conditions in Mato Grosso, Brazil, the start of planting will be delayed.

90-day outlook: November 2013 soybean futures have a lot of work ahead in order to be competitive with $6.61 December 2013 corn futures. If weather concerns in South America continue, it will be supportive for 2013-crop soybean contracts.

Hedgers: 25% of expected 2012-crop production is covered in Nov. $14.00 put options for 42 3/8 cents. 50% of expected 2012-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 50% sold on expected 2012-crop production for harvest delivery.




Price action: Wheat futures turned in a very strong performance to close out the week, ending roughly 14 to 22 cents higher in Chicago, 14 to 25 cents higher in Kansas City and 11 to 15 cents higher in Minneapolis today. Wheat futures finished near weekly highs and above last Friday's close after price pressure earlier in the week.

5-day outlook: Much of the late-week strength came courtesy of heavy pressure on the U.S. dollar. If the greenback continues to fall next week, wheat futures should build on this week's gains. But if traders shy away from risk, wheat may struggle to find active buying.

30-day outlook: Dryness is an issue in U.S. winter wheat country as the crop goes into the ground. It's also a concern in Australia, where production estimates have already been cut by dry conditions, especially in Western Australia. In Argentina, too much moisture is a concern as flooding may shift some wheat acres to other crops.

90-day outlook: Countries continue to aggressively buy Black Sea region wheat amid fears exportable supplies will be very limited by year-end. A dramatic slowdown in exports from the Black Sea region would boost demand for U.S. wheat down the road, especially if there are crop problems in Australia and Argentina.

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 rallied sharply, posting gains of 164 to 244 points today amid a broad-based "risk-on" move in the investment world. But cotton still ended lower for the week.

5-day outlook: Fundamentally, cotton traders remain concerned about the slowing Chinese economy and the impact that will have on demand, which could limit buying interest. But if traders continue with the "risk-on" attitude next week, cotton should see some followthrough buying. Technically, cotton futures are set up for a round of fresh buying after a breakdown of support earlier this week turned into a bear trap.

30-day outlook: Barring a need for any major changes to USDA's crop estimate, most of traders' focus will be on the demand side of the market moving forward. That limits upside potential as China's economy continues to slow, which will limit its willingness to aggressively import cotton.

90-day outlook: Despite efforts to boost the European economy, it's unlikely there will be enough growth to have a significant impact on Chinese demand for cotton anytime soon. Without a bullish surprise on the demand front, the upside is limited for cotton as USDA is projecting a sharp year-over-year rise in domestic and global ending stocks.

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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