Crops Analysis (VIP) -- September 7, 2012

September 7, 2012 09:53 AM


Price action: Corn futures ended about steady to slightly higher compared with last week's close to remain within the boundaries of the sideways trading range. Upside potential was limited by a lack of fresh news this week, while pressure was limited by tight supplies.

5-day outlook: Traders expect next week's USDA Crop Production Report to show a smaller crop, but USDA will lower demand if supplies tighten. The end result could be just a small drop in 2012-13 carryover from last month. Outside markets could also have more of an impact on commodity markets next week as investors expect the Federal Reserve to announce additional stimulus given today's disappointing jobs report (see Evening Report for more).

30-day outlook: The pushed maturity of this year's crop means harvest should largely be wrapped up by the end of the month if the weather cooperates. Seasonal hedge-related pressure should intensify in the coming days and weeks. Basis has already begun to soften, but it still remains above the three-year average due to tight supplies.

90-day outlook: The longer prices remain historically high, the more demand destruction that will be done. Talk about record acreage next spring is already filtering into the market.

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: Soybean futures saw choppy trade all week, but bears held the upper hand most of the session today and into the close. Futures ended with double-digit losses for the day and slightly lower for the week. Soymeal and soyoil also ended lower for the day and the week.

5-day outlook: Action in the soybean market next week will revolve around USDA's Crop Production and Supply & Demand Reports on Wednesday and whether the Federal Reserve announces a third round of quantitative easing on Thursday. Both are potential market-moving events for soybeans.

30-day outlook: Hedge-related harvest pressure will build in the weeks ahead. Because traditional funds hold a large net-long position in beans, any decline could be steep if liquidation pressure intensifies. However, this would likely be short-lived as supplies are very tight.

90-day outlook: Attention is on finding a price that slows use and rations supplies. Historically high prices have thus far caused very little letup in demand. Tight supplies will also result in more attention on the upcoming South American growing season.

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 posted double-digit gains in the first several contract months in Chicago and Kansas City. Minneapolis wheat posted slightly lesser gains. Wheat futures also posted gains for the week.

5-day outlook: USDA will update its wheat Supply & Demand table next Wednesday, but there will not be an updated wheat production estimate -- that will come in the Small Grains Summary on Sept. 28. Instead, traders will remain more focused on global supplies, corn futures and outside markets for price direction.

30-day outlook: While El Nino is still expected to be established sometime this month, some forecasters are now calling for a short-lived event. With so much hanging in the balance from a global production standpoint based on the weather, the development of El Nino will be watched closely and will be a key market factor.

90-day outlook: There's a lot of talk about Russia (and other Black Sea region countries) enacting an export ban at some point in the not so distant future. Whether there's an export ban or not, it appears very likely wheat exports from the Black Sea region will slow dramatically the second half of the 2012-13 marketing year.

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 out a quiet and choppy day of trade with modest gains across the board. But cotton futures were unable to fully recover from Tuesday's losses and finished lower for the week.

5-day outlook: USDA will update its cotton production forecast next Wednesday, which has market-moving potential. But barring any major surprises from USDA, much of the focus will be on outside markets as investors wait to see if the Fed will announce another round of quantitative easing to boost the economy.

30-day outlook: The cotton crop withstood Hurricane Isaac relatively well. But with hurricane season lasting until Oct. 1, there's still at least three more weeks of potential danger for the crop. Traders are unlikely to be too concerned unless the magnitude or frequency of tropical storms is high.

90-day outlook: A strong boost in demand is needed to fuel a strong price rally in the cotton market. Unfortunately, China's economy continues to slow, which makes it highly unlikely to world's top buyer of cotton will sharply ramp up purchases.

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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