Crops Analysis (VIP) -- September 25, 2012

September 25, 2012 09:47 AM


Price action: Corn futures were choppy throughout the day and ended narrowly mixed, which was mid-range for the day.

Fundamental analysis: Periods of price support came on ideas the cash market has absorbed early harvested supplies, returning the focus to the overall tightness of this year's crop. Given the forecast for dry conditions across the bulk of the Corn Belt this week, harvest should easily cross the halfway mark, which means the bulk of harvest-related hedge pressure is likely behind the market. Adding to this expectations was improvement in Gulf basis.

But buying was limited as there was little other fresh news for the market to digest and outside markets softened in late trade.

Technical analysis: December corn posted an inside day of trade on the daily chart. Initial support lies at yesterday's low of $7.36 1/2, with the next strong support at the bottom of the July 5 gap at $6.76. Resistance begins at last week's high of $7.81 and extends to the Sept. 10 high of $8.06 1/2.

Hedgers: 60% sold on 2012-crop in the cash market -- 50% for harvest delivery; 10% for March 2013 delivery. Also, 40% of expected 2012-crop production is covered in Dec. $6.50 put options for 31 1/2 cents.

Cash-only marketers: 60% sold on 2012-crop production -- 35% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.




Price action: Soybean futures settled mid-range with gains of 1 1/2 to 5 3/4 cents in the November through September 2013 contracts; far-deferred months were narrowly mixed. Soymeal closed slightly higher while soyoil ended with moderate losses amid spreading activity and pressure from the crude oil market.

Fundamental analysis: Soybean futures benefited from corrective short-covering today amid ideas the downside has been overdone recently, especially considering the tight supply situation. Indeed, Gulf basis levels have recently trended steady to firmer, signaling the market is readily absorbing supplies as they become available. But with harvest activity picking up, the market's upside is limited over the near-term.

The market is also beginning to ready for the Quarterly Grain Stocks Report. Pre-report trade expectations are for USDA to slash 2012 soybean stocks from 667 million bu. as of June 1 to 132 million bushels. Sept. 1 stocks will mark final 2011-12 ending stocks.

Technical analysis: November soybean futures saw an inside day of trade, leaving near-term support at yesterday's low of $15.90 1/4, closely followed by the August low of $15.55 1/4. Last Thursday's high of $16.86 is initial resistance, followed by the July high of $16.91 1/2.

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 mostly 2 to 5 cents lower in Chicago and Kansas City. Minneapolis wheat finished mostly 5 to 8 cents lower. Futures at all three exchanges closed in the lower end of today's range, but off session lows.

Fundamental analysis: Wheat futures were unable to hold the mostly firmer tone that was established overnight. Support from outside markets gradually faded and the corn market was under pressure for much of the day. Plus, rains forecast for dry areas of the Central and Southern Plains were price-negative as that should help newly planted wheat and encourage more planting of the winter wheat crop. Given a lack of supportive news, these factors mildly pressured futures.

But with demand for U.S. wheat expected to improve as exportable supplies from the Black Sea region tighten, downside risk should remain limited unless corn weighs heavily on wheat.

Technical analysis: Key near-term support for December Chicago wheat futures lies at the bottom of the extended, choppy trading range at $8.57 1/4. If that support is violated, it would open downside risk to the bottom of the July 5 gap at $8.15.

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 with slight losses of 20 to 47 points, which was on or near session lows.

Fundamental analysis: Cotton futures attempted to work higher on short-covering today. But the corrective buying interest dried up as support from outside markets faded. Given a lack of supportive news, cotton traders have little reason to be active buyers, which leaves the market vulnerable to more near-term price pressure.

Technical analysis: After a failed attempt at an upside breakout from the extended, choppy range, December cotton futures appear headed for a test of the lower end of the range. Initial support is at Aug. 13 low of 71.59 cents. Below that, support is at the July low of 69.40 cents.

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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