2012 Bi-Weekly Market Briefings
Slow export sales may limit Cotton’s upside. The USDA has projected 16 million bales in exports for ’07–08, but at the halfway point, they’re just 6.1 million. That means we’re either due a great second half of the year (read improved price opportunities), or the USDA must lower its estimate and raise projected stocks (read poor price prospects). More likely, we’ll see stocks creep toward 9 million bales from the current 7.9 million projection. Meantime, look for reports on the National Cotton Council Plantings Survey due out today, Feb. 8.
Early estimates have ’08 plantings at 9–10 million acres. The lower end puts production at 14 million–15 million bales and a likely stocks draw down. That will put cotton in the ’09 acreage bidding war, with $1 futures a good possibility. For now, old-crop March has good support at 67 cents and resistance at the 73-cent contract high. December is trading at 75–80 cents, possibly higher later in the year.
Rice is getting another boost from the recent rebound in grains and soybeans that has helped push futures above $15. Thailand and Vietnam continue to cover export tenders, and a firm undertone has developed in the international market. Both have hit or exceeded $400 a ton, as tight world stocks become a bigger factor. U.S. stocks are tight and can get tighter if acres move to beans or corn. Current prices may be enough to hold acreage, even with rising fuel and fertilizer costs. As long as wheat, beans and corn move higher, rice has upside potential.
Wheat is moving toward new highs. Spurred by smaller-than-expected winter wheat plantings and bad weather in some hard red areas, Spring Wheat Futures have rampaged to higher than $15. That has boosted Soft Red Futures, and all contracts are poised to test contract highs. A July close above $9.17 can be a springboard to $10. Inability to close above $9.17 likely will retest support at the recent $8.50 low. Downside seems limited, with world stocks extremely tight. Weather problems in any key production area — extreme cold in China’s main region, for example — simply will stoke the fire.
Soybeans are making a strong recovery. Recently, November topped $13, only to make a three-day, $1.27 downward retracement. Things looked bad when the economy slipped in the U.S. and around the world. The Federal Reserve cut the prime interest rate resoundingly, and Congress quickly pushed a recovery package. That may not be the solution, but beans rebounded solidly. They consolidated for a few days and now look poised for new contract highs.
Most farmers have their ’08 plans made. The market, though, isn’t really satisfied acreage is sufficient to cover ’08 bean and corn demand, both. Add to that some concern over the availability of quality seed, and you have potential for another leg higher in this market. A November close above $13.04½ will signal further gains. Otherwise, we’ll likely see a retest of support at $11.67½.
A quick rebound has December Corn in position to test resistance at the $5.40 contract high, and strong demand helped trim a good part of recent losses. Downside is limited, at least in the near term. With ’08 use expected at 13.5 billion bushels or more, plantings can’t fall much from 2007’s 93.6 million acres. Even a drop to 90 million may be a problem, since it will require a 156-bushels-an-acre yield. So for now, downside is limited. Come planting time, however, things may change. Current December support is the recent $4.84 low. A close above $5.40 or below $4.84 will signal more movement in that direction.
Looking at Dairy, February’s Class I Fluid Milk price is down $1.29 from last month, to $19.68, but $6.29 higher than a year ago. The Class I base price (the higher of advanced Class III or Class IV Skim Milk price), plus the Class I differential for each order, determines Class I Skim Milk. Feb. 1, buyers bid up the block price 7 cents and the barrel price up 6 to $1.80 and $1.78, respectively.
Blocks gained 15 cents with 38 trades, matching the most activity for a week since September ’04. Milk Futures posted double-digit gains in February–September ’08. January’s Class III price is $19.32, down 1.28 cents from December, but up $5.76 from a year ago. January Class IV is $16.29, down $2.89 from December, but up $3.76 from last year.
Cattle futures have some upside potential due to lower feed and better cash prices. The recent Quarterly Cattle Inventory Report is bullish for front-end contracts, since it confirms some herd liquidation. However, U.S. economic concerns are limiting the market’s upside potential. April Live Cattle Futures are in a consolidation pattern, with resistance at the recent $95.45 high. Support is near $93.50.
Lean Hog futures clearly are broken out of the downward trend they’ve suffered since Jan. 1. While premium to cash is limiting expiring February, the June Contract has moved to a new contract high. Signs say the market has hit its winter bottom, and prices will trend higher. Strong demand has kept packers buying, and that recently has supported the cash market.
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Winter storms have taken a toll on China’s pig herd and sparked talk of added demand for U.S. pork there. However, the market is overbought and due correction. The first downside objective for June is the $77.30, 38-percent retracement level.