2012 Bi-Weekly Market Briefings
An expected decline in ’08 cotton acreage is sparking an advance. Although the domestic mill market is still slow and stocks are more than ample for projected export demand, concern about that acreage is growing. With corn futures approaching $5 and new soy just under $12, it’ll take higher futures to stem the tide of movement away from cotton.
Higher cotton production costs and concern over maintaining yields are just two of the factors producers consider when they decide to plant something else. Price is obviously another factor, and it appears futures will have to be in the 80s for cotton to receive much consideration. Currently, December has moved to a new contract high near 77 cents. Support starts at the recent 70.6-cent low. During the next year, cotton will be price competitive.
Rice registers a record CBOT price. It has been boosted by potentially lower U.S. plantings in ’08, tight U.S. and world stocks, index buying and strength in other grains and beans. Part of the advance is an attempt to keep rice acres from migrating to other crops. Weaker soils that require more fertilizer and extensive irrigation are likely to be planted in beans or corn.
Technically, March futures gapped higher a week ago. That can signal another strong move up, or it may be the precursor of a market top. Watch the market closely in days ahead.
Soybeans’ upward trend is continuing. The trend is still intact, but, technically, some signs still should be considered. In mid-November, November Futures left a penny gap at $10. As a measuring gap from the previous reaction $8.30 low, it gives an $11.70 upside objective. This week, November reached that objective and today, the market gapped higher again. This may be an exhaustion gap.
The market is also heavily overbought, according to the current Relative Strength Index that’s nearing 90 percent. (Anything over 70 percent is considered overbought.) So, be aware that the market is due a correction, and it can happen any time. On the other hand, the correction might be short lived, with initial support around $11; then, near $10. Upside, old-crop July has touched $13, and other contracts aren’t far away. At last, “beans in the teens.” But will it last?
Can corn be far behind record wheat, rice and bean prices? With most corn futures contracts nearing $5, will we exceed the $5.54½ June ’96 record?
It’s certainly possible, with index funds expected to rebalance accounts to favor corn. However, like beans, there are technical signs indicating the need for caution.
The market isn’t likely to fall to old lows, but fundamentals don’t really support current price levels, either. New-crop December has gaps on Jan. 2 and today that may be exhaustion gaps. Or if they’re measuring gaps, they will project another leg higher and take the market to record levels. Be cautious, and think about adding to ’08 crop sales. Downside, closing the Jan. 2 gap at $4.77 ½ will test trend-line support at $4.50–$4.60. Additional support is at $4.36½ and $4.20.
Wheat is holding its trading range. After making a triple top at $8.30 and finding support around $7.65, wheat has moved sideways. For now, that 65-cent range is fairly solid. The market will be looking for surprises: weather problems in major production areas, the Midwest drought, a potentially developing La Niña, fewer-than-anticipated planted acres, or large export sales. Needless to say, the market is on pins and needles and could go either way.
Cattle futures still are trending lower. We expect stressful weather in the Plains to limit supplies of market-ready cattle, which has limited the downside. Weak demand, however, is keeping a lid on prices. Competition from cheaper pork and poultry is taking its toll on beef. April has support at $96.55, the bottom of the trading channel that has held the market since November.
Hog futures still are trading near contract lows. Large pork supplies and weak wholesale prices are pressuring the market. We’re recording huge daily kills, but that may just be cleanup after holiday shutdowns. Futures are oversold and due a corrective bounce, but are still trading at a steep premium to cash prices. Futures might drop back to the November lows just above $50.
In poultry, commercial hatcheries in the 19-state weekly program set 220 million eggs in incubators last week. This was up 4 percent from a year earlier. Average chick hatchability for the week was 83 percent. Broiler growers in that 19-state program placed 176 million chicks for meat production last week, 5 percent more than one year earlier. In 2007, placements were 9.14 billion, up 2 percent from a year earlier.
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The Georgia dock-quoted price for broilers and fryers for the week was 76.75 cents, based on full truckload lots of ice-pack USDA Grade-A 2½–3-pound birds. Some 82 percent (900 loads) offered are confirmed within 74.9–78.5 cents, with a preliminary weighted average of 76.36-cent dock or equivalent. The market continues moderate and the live supply adequate for normal-to-good, mostly normal, demand. Average weights are desirable.