Corn
Price action: Corn futures finished with losses in the 14- to 16-cent range in the September through July contracts. Far-deferred futures posted lesser declines.
Fundamental analysis: Pressure on corn futures built around mid-morning as funds led a round of long liquidation. With USDA’s September crop reports out Wednesday and the Fed monetary policy meeting ending Thursday, traders opted to lighten their long exposure. For the day, funds were sellers of an estimated 8,000 contracts (40 million bu.) of corn.
Additional pressure on the corn market came from seasonal selling as combines are actively rolling. Given the relatively poor quality of this year’s crop, there will be an increase in the percentage of corn sold off the combine. That threatens to put seasonal pressure on the market even though this year’s crop is short.
Technical analysis: December corn futures posted a bearish reversal today and violated flat support at the $7.87 level. Importantly, the contract stopped just shy of the 50-day Moving Average. If that support is violated, it could trigger active speculative sell stops.
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.
Soybeans
Price action: Soybean futures saw a choppy day of trade, but weakened into the close to post double-digit losses in the mid to upper teens.
Fundamental analysis: The onset of harvest in the U.S. and favorable weather for soybean planting in Brazil provided pressure in the bean market today, although selling was limited as traders are evening positions ahead of Wednesday’s key USDA reports. Traders look for the report to reflect a tightening supply situation, as well as razor-thin carryover for 2012-13 (see “Evening Report” for pre-report expectations).
Official Chinese customs data that showed August imports down 24.7% from the previous month also provided pressure, although demand has still not slowed to the point needed to ration supplies.
Technical analysis: November beans sank into the close to post a downside day of trade on the daily chart. The low-range close points to a weaker start in overnight trade. Initial support lies at the July high of $16.91 1/2. Closes below that level would signal a near-term high is in the works. Contract-high resistance stands at $17.89.
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.
Wheat
Price action: Wheat ventured into positive territory at times today, but such moves were short-lived. Futures at all three locations ended at or near their daily lows with losses in the teens for Chicago and Kansas City wheat; Minneapolis wheat ended 20-plus cents lower in most contracts.
Fundamental analysis: Traders in the wheat market focused on minimizing risk ahead of what is expected to be a slightly negative carryover adjustment by USDA Wednesday. It is expected to raise its 2012-13 carryover estimate by 11 million bu. from last month to 709 million bushels. Building selling pressure in the corn market during the last hour of trade spilled over to wheat.
But downside risk is likely limited as the global wheat supply outlook has tightened thanks to production concerns in the Black Sea region along with dryness concerns in Australia and the U.S. Southern Plains.
Technical analysis: December Chicago wheat futures ended low-range and in the lower half of their recent consolidation trading range, which is bound by the August low and high of $8.57 1/4 and $9.45 1/2, respectively.
Hedgers: 75% cash sold on 2012-crop in the cash market.
Cash-only marketers: 75% of 2012-crop production is sold.
Cotton
Price action: A lightly traded session ended with cotton futures settling low-range with losses of 67 to 88 points.
Fundamental analysis: Today marked the start of China’s stockpiling program, in which the country buys cotton for its reserves in an effort to stabilize domestic supplies. This put light pressure on futures as it raises ideas the nation’s demand for exports will be reduced.
Traders are also readying for USDA’s Crop Production Report Wednesday, which is expected to be mildly friendly. Pre-report expectations are for USDA to lower its production estimate by 400,000 million bales from August to 17.4 million bales and for it to lower its ending stocks estimate slightly to 5.4 million bales. Exports are expected to decline slightly to 12 million bales.
Technical analysis: December cotton futures remained within their recent, narrow trading range, with near-term support lying at last week’s double-bottom low of 74.80 cents and resistance at 77.29 cents, which has stemmed rallies three times since Aug. 30.
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.
