Crops Analysis (VIP) -- September 28, 2012

September 28, 2012 09:41 AM


Price action: USDA's bullish Sept. 1 corn stocks figure triggered a sharply higher to limit-up move in corn futures today. That was enough for all but far-deferred contracts to manage slight net-gains for the week.

5-day outlook: USDA's bullish "September surprise" may have put a short-term low in the corn market. The key will be end-user demand. South Korea was an active buyer of corn ahead of this morning's reports. If other end-users sense the corn market has bottomed and step up purchases, it will be easier to find sustained buying interest in corn futures.

30-day outlook: USDA's Oct. 11 Crop Production Report will be the next batch of potentially market-moving fundamental data for corn. If the old adage that "small crops get smaller" holds true, USDA's estimate will be down from September. But due to the very advanced maturity of this year's crop, we suspect USDA caught most of the yield losses in its September report.

90-day outlook: Corn traders proved this summer that they can put poor macro-economics on the back burner and focus on fundamentals. But for that to be consistently the case -- even with bullish fundamentals -- fresh bullish news is needed. Demand will remain the key as that will tell traders whether prices are "high enough" or "too low."

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 recovered much of this week's earlier losses to finish just below week-ago levels.

5-day outlook: If today's strong move off this week's low is accompanied by followthrough buying on Monday, it would strongly suggest the market is working on a near-term low. But due to an active harvest pace, it could be difficult for soybeans to generate strong buying early next week. Therefore, key will be if end-users continue to cover their needs -- as China has done this week.

30-day outlook: Reports of "better-than-expected" soybean yields have traders looking for a higher crop estimate in October. That, combined with an uptick in 2012-13 carry-in (set by today's Grain Stocks Report) will increase carryover, though the stocks situation remains tight.

90-day outlook: Timely rains in Brazil have encouraged producers to begin planting, but more will be needed as soils haven't been fully recharged. The bid for 2013 U.S. acres has already begun and early indications are soybeans are gaining some ground due to disappointing corn-on-corn yields this year.

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 surged on USDA's friendly report data today and ended 40-plus cents higher in nearby contracts at all three locations. Today's surge helped the wheat market finish near-steady to slightly above last Friday's close.

5-day outlook: Today's tighter-than-expected Sept. 1 corn stocks figure from USDA was just as supportive as its bullish wheat stocks estimate, as it signals wheat will continue to be actively used for feed. The tighter-than-expected supply situation for wheat and corn should limit near-term downside risk for wheat futures.

30-day outlook: Recent rains in the Southern Plains have aided winter wheat planting and establishment, but much more is needed to ease production concerns in the region, as the Drought Monitor shows widespread drought persists in winter wheat country and the forecast through December holds little chance for significant relief.

90-day outlook: Production concerns in the U.S. add to those in the Australia and the Black Sea region. A flurry of export activity this week reminds traders that end-users expect tightening supplies will slow exports from the Black Sea region substantially through year-end, which should up demand for U.S. wheat.

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 two-sided trade, but the market ended low-range with losses of 67 to 88 points today. Futures posted weekly losses and also ended near weekly lows.

5-day outlook: Cotton futures benefited from short-covering encouraged by the rally in the grain market at times today, but in the end, it was outside markets and ongoing signs of global economic weakness that proved the greater influence. This will likely remain the case next week. Ongoing harvest will continue to weigh on the market until it reaches at least the halfway point. As of Sept. 23, harvest was 10% complete.

30-day outlook: Harvest pressure should ease in the month ahead, but macro-economic concerns will remain a source of pressure. Heightened economic worries in the euro-zone are especially concerning as the region is a major buyer of Chinese textiles, and China is a major importer of U.S. cotton. The Chinese economy has also shown signs of slowed growth.

90-day outlook: Attention will begin to shift to bidding for acres. Recent declines in cotton prices and strong gains in soybeans and corn prices makes it very likely cotton will lose acres to these crops unless prices improve notably. This should keep a floor under cotton prices.

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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