2012 Bi-Weekly Market Briefings
Has Wheat’s downside breakout confirmed a market top? Maybe. All signs point to a dying market. It gasps, then makes a determined rebound.
That’s how it’s been the past few days. Just days ago, old-crop December broke an up-trend support line, and new-crop July closed below a well-defined four-week consolidation. Both are technical signals that suggest more declines with a high degree of reliability. The market apparently doesn’t know that. It quickly rebounded, moving December back above the up trend and July near the top of the consolidation within cents of the contract high. A shrinking Australian crop and weakening dollar provided the boost.
The question now is, “Whither goeth the market?”
My guess is — and I stress guess — the market will show great volatility, but tend to work lower. Use rebounds such as this to add to new crop sales.
Soybeans are challenging contract highs. A major move in crude oil has helped drive soy oil to 30-year highs amid heightened interest in biodiesel production. Nearby futures are testing resistance at contract highs. This might bring a breakout upside, or it may be a double top. While the market seems quite comfortable trading at or about $10, will fundamentals support that level very long?
The possibility of a huge South American crop and that as much as 8 million acres of ’07 corn may be ready to move back to beans make more upside potential questionable. Nevertheless, a weak dollar and strong index fund interest still might move the market up. Look to the charts for the answer. A January close above the $10.33 contract high will bring the $10.64 April ’04 high into play. Initial trend-line support for a downturn is $9.95. The next support is $9.63½, then $9.41.
Strong export demand rallies Corn. Very good export movement has triggered a contra-seasonal corn move, despite a record harvest. Concern about acreage moving back to beans has added support, too. A weaker dollar and a big supply make the U.S. a prime corn export target — and that’ll tend to offset any slowdown in ethanol production.
Additionally, record crude prices and a 20-cent-plus-a-gallon increase in ethanol futures have already improved those prospects. So, look for soybeans and corn to “duke it out” for U.S. acres. There may not be a knockout, but there will be much counter punching into the ’08 planting season.
For now, look for futures for the ’07 crop to stay below $4. Key resistance is $3.89½ and $4.04¾ for December and March Futures, respectively. Support on downturn starts at $3.56½ for December and for March, $3.72¾.
The Cotton picture is unchanged. December ’07 Futures have tested the water just above 65 cents several times in the past few weeks and found little interest in moving higher. Fund support may begin to waver if buying doesn’t pick up soon. Big ’07 supplies and less demand from China suggest limited upside potential in the next 90 days.
Initial 62.2-cent support may be challenged. If so, a break to 59.8 cents is possible. Conversely, ’08 December may need to trade into the upper 70s or lower 80s to keep ’08 plantings at 10 million acres.
Rice Futures are continuing on a consolidation path. Sometimes, no news is good news, and this may be the case. For now, the market is moving sideways and has shown little inclination to change. Tight world and U.S. stocks, strong wheat prices and a weak dollar all suggest further upside potential — but when?
Thailand is the major source of rice exports, with bans in Vietnam and India, and is moving old intervention stocks and making way for new-crop stocks by year’s end. Vietnam is 60–90 days away from harvest. January Futures have resistance at the $12.11 contract high. Support is the recent low of $11.71.
The Dairy uniform blend price in Federal Order 7 for October is slightly lower than last month’s $23.77 a hundredweight of milk, 3.5 percent butterfat.
The Class I price for November is $24.55, down 14 cents from October. Class II actually is up 18 cents from October, while Class III shows a 95-cent drop.
Class I use is in the 67–68-percent range for October, about the same as the month before.
Nationally, the USDA estimates that the milk/feed price ratio — pounds of 16-percent mixed dairy feed equal in value to one pound of whole milk — was 3.21:1 in September. This is a rise of 0.03 points from the revised August 2007 3.17:1 ratio.
Cattle Futures are still under pressure from weak prices. Beef is having a tough time competing with lower-priced pork and poultry. Signs of a weakening economy are also negative, since traders expect U.S. consumers to have less to spend on food. Tighter fed-cattle supplies are supportive, but more September placements weigh on deferred contracts. December Futures have support around $94.
Hog Futures are trading at contract lows. Burdensome supplies are weighing on the market. Last week’s kill was 6½ percent larger than the same week last year, a new record. In fact, we’ve set new records for the past four weeks. Currently, oversold conditions and futures trading at a discount to cash are tempering losses. Weekly chart support begins at $53.55.
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