Grain Analysis -- July 19, 2012

July 19, 2012 09:40 AM
 

Corn

Price action: Corn futures saw a very volatile day of trade and market bears gained the upper hand heading into the close. The July contract ended 12 3/4 cents higher and December settled 5 3/4 cents lower, but the rest of the market posted losses of 12 3/4 to 25 cents.

Fundamental analysis: September corn futures set a record high on the weekly continuation chart this morning thanks to ongoing concern about widespread drought and the extended forecast for more crop-damaging temps and dryness ahead.

But choppy trade signals the market is growing increasingly concerned about how much higher prices can go as well as their demand implications. Speculation has mounted about altering the Renewable Fuels Standard and several Chinese feed makers are looking to sell back U.S. corn cargoes. Plus, this morning's disappointing weekly export sales of 31,900 metric tons (MT) for 2011-12 and 148,800 MT for 2012-13 signal resistance to high prices.

Technical analysis: September corn futures hit a record high of $8.16 3/4 on the weekly continuation chart today and it was the only contract to settle-high range. Resistance is layered at 10-cent increments starting at $8.20. The psychological $8.00 level is support. Inability to hold above this level could signal a sharp reversal is imminent.

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. 90% sold on old-crop in the cash market.

Cash-only marketers: 90% sold on old-crop. 35% forward priced on expected 2012-crop production -- 10% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.

 

Soybeans

Price action: Soybean futures traded in a wide-range stretching from the teens to the 60s today. Futures ended with gains in the 20s to 40s through the January contract, while farther deferred months ended with double-digit losses. Soymeal and soyoil closed with strong gains.

Fundamental analysis: The National Weather Service's forecast for heat and dryness through October in the Midwest points to stress during the crucial pod fill stage for the soybean crop. Soybean supplies were expected to be tight even without production troubles. For this reason, the market actively worked to build more weather premium into prices today.

But a bit more attention is beginning to be placed on the demand side of the equation, and it appears prices are beginning to do their job in rationing supplies. Today's weekly export sales of 135,300 MT for 2011-12 and 272,300 MT for 2012-13 fell short of expectations, though news of a 112,000 MT new-crop corn sale to the United Kingdom partially offset this news.

Technical analysis: August soybean futures set an all-time high on the weekly continuation chart today at $17.49, but settled about 20 cents off this level, leaving it as near-term resistance. The psychological $17.00 level is support.

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. 90% sold on old-crop in the cash market.

Cash-only marketers: 85% sold on old-crop. 50% sold on expected 2012- crop production via forward contract for harvest delivery.

 

Wheat

Price action: Wheat futures ended with gains in the teens to 30s in nearby contracts, while some deferred contracts faced pressure. Wheat enjoyed stronger gains than the front-month corn contract as wheat is being viewed as a value buy.

Fundamental analysis: Front-month corn futures rose to an all-time high on the weekly continuation chart today, but front-month Chicago wheat is around $4 lower than its all-time high set in 2008. Given widespread drought and increased interest in U.S. wheat supplies, traders returned to the market to sharply advance nearby wheat futures.

Strong export demand prospects were validated by this morning's weekly export sales report, as sales of 589,200 MT for 2012-13 topped expectations. Production concerns overseas continue to boost U.S. wheat export prospects.

Technical analysis: September Chicago wheat hit buy stops on the move through $9.10, with today's high of $9.38 being just 25 1/4 cents shy of the contract high of $9.63 1/4 posted in May of 2011. Futures would need to drop back below the August 2011 high of $8.53 1/2 to signal a near-term high has been posted.

Hedgers: 75% cash sold on 2012-crop for harvest delivery. 100% sold on 2011-crop in the cash market.

Cash-only marketers: 75% of 2012-crop production is sold for harvest delivery. 100% sold on 2011-crop.

 

Cotton

Price action: Cotton futures posted a high-range close, but saw limited buying as futures closed just 31 to 86 points higher.

Fundamental analysis: Cotton futures remain within their choppy consolidation range, as the market is still unexcited about buying cotton given prospects for plentiful global supplies. There is also very little concern for the U.S. crop despite the widening drought, as condition ratings are better than a year ago.

This morning's weekly export sales data was viewed as slightly supportive, as was a weaker dollar. Net Upland sales of 41,600 running bales (RB) for the 2011-12 marketing year were up noticeably from the previous week. Net sales of 34,100 RB were reported for 2012-13.

Technical analysis: December cotton futures remain in the two-month-long consolidation range. To initiate a challenge of downtrending resistance drawn off February and May highs, futures must first clear the June high of 74.80 cents to signal a near-term low has been posted.

Hedgers: 100% sold on old-crop in the cash market. 50% priced on expected new-crop production via cash forward contract for harvest delivery.

Cash-only marketers:100% sold on old-crop. 50% priced on expected new-crop production via forward contract for harvest delivery.

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