Corn
Price action: Corn futures closed 4 to 6 cents lower in the December through September 2013 contracts, with September 2012 ending 1 1/4 cents higher.
Fundamental analysis: Traders rushed to the exits in late trade, working to lighten their long exposure to the market ahead of tomorrow morning’s key USDA reports as they realize a sharp drop in the size of the crop is already factored into prices. While traders look for USDA to trim the size of the corn crop to 10.403 billion bu. from 10.779 billion bu. in August, they also expect USDA to lower its usage estimates. According to the average pre-report guess, traders expect 2012-13 carryover of around 618 million bu., which, if realized, would be down 32 million bu. from last month and reflects significant rationing as the crop estimate is expected to be down by around 376 million bu. from last month.
Technical analysis: December corn futures posted a downside day of trade on the daily chart, dropping to its lowest level since late July. Next support is the 25% retracement level of the rally from the June low to the contract high, which stands at $7.63 1/2. It would take a close below the 38% retracement level near $7.18 to signal a major high has been posted.
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: Pressure on soybeans built as the day progressed and futures ultimately finished with losses of 13 3/4 to 17 1/2 cents. Soymeal and soyoil also ended with losses for the day.
Fundamental analysis: Traders focused on removing risk ahead of what in the past has been “surprising” September USDA reports. Pre-report expectations are for USDA to trim its national average yield projection to 35.5 bu. per acre for a crop of 2.638 billion bushels. They expect USDA to trim 2011-12 carryover to 137 million bu. and 2012-13 carryover to an even smaller 106 million bushels.
Also encouraging some profit-taking today was yesterday’s crop condition report that showed slight improvement in the rating of the bean crop. Plus USDA’s crop progress update showed harvest is already 4% complete as of Sunday, though firmer Gulf basis levels today indicate supplies are not yet readily available.
Technical analysis: November soybean futures briefly penetrated near-term psychological support at $17.00 but settled just above this level. If the contract takes out that support tomorrow, it would make bears’ next target the $16.50 level. 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 futures were choppy today and most contracts ended mid- to low-range. Chicago and Minneapolis wheat ended with slight losses in most contracts while Kansas City wheat settled narrowly mixed.
Fundamental analysis: Wheat traders worked to even positions ahead of USDA’s Supply & Demand Report tomorrow morning. Pre-report expectations are for USDA to raise its 2012-13 carryover estimate by 11 million bu. from last month to 709 million bushels. But any big reaction in the corn market to report data may be a bigger driver of wheat trade tomorrow.
News Egypt bypassed U.S. supplies in favor of Russian, Ukrainian and French wheat in its purchase for 235,000 metric tons (MT) limited buying interest in wheat futures. But this was countered by news ABARES lowered its Australian wheat crop estimate to 22.5 million MT. Plus, an ag ministry official said Ukraine’s wheat exports will plummet to “50,000 to 100,000 MT per month” starting in November or December.
Technical analysis: December Chicago wheat futures ended low-range but within their recent recent consolidation trading range. Support lies at the August low of $8.57 1/4, while resistance stands at the August high of $9.45 1/2.
Hedgers: 75% cash sold on 2012-crop in the cash market.
Cash-only marketers: 75% of 2012-crop production is sold.
Cotton
Price action: Cotton futures saw two-sided trade but extended losses into the close to finish 70 to 110 points lower, with deferreds leading losses.
Fundamental analysis: Sharp weakness on the U.S. dollar index helped limit pressure on cotton futures at times, but as focus turned to position squaring ahead of tomorrow morning’s USDA report, price pressure intensified. Given expectations for reduced global demand in the year ahead, it would take a sharp drop in the size of the global crop to spur a bullish reaction to the data. According to pre-report expectations, traders look for USDA to lower its U.S. production estimate by 300,000 bales from August to 17.4 million bales and for a slight reduction in carryover to 5.4 million bales. Exports are expected to decline slightly to 12 million bales.
Technical analysis: December cotton futures tested support at last week’s double-low of 74.80 cents. But today’s low-range close points to followthrough pressure tomorrow. Violation of this support could trigger sell stops, with the next support level at the mid-August low of 71.59 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.
