2012 Bi-Weekly Market Briefings
Soybeans have gapped to new all-time highs this week. Big gains in crude oil prices and demand from China have been factors.
Of course, with the index funds taking huge long positions in the market, traditional fundamentals don’t mean as much as they used to, or maybe should. Index funds currently hold contracts on 1 billion bushels of soybeans, and that’s the main force holding prices at record high levels. However, economic growth in China is an important factor, as well. The Chinese government is working to control inflation, and China is making large purchases of soybeans and soy oil to combat high food prices.
As the South American harvest gets cranked up, the U.S. will have competition for China’s business — but not right now. November charted a key reversal last week, but has yet to show any follow-through weakness.
Corn futures looked as if they were topping last week, but weakness has been limited.
March does have resistance at the key-reversal top of $5.28¾ that was charted Feb 6. The index funds are long approximately 2 billion corn bushels. Therefore, as in beans, the usual supply and demand factors aren’t really driving this market, either.
Corn is, of course, in a bidding war with soybeans for 2008 acreage — and good usage numbers suggest the market can’t afford to lose too many acres.
Chicago Wheat Futures appear to have topped. As in corn, however, the downside has been limited, to say the least. The index funds are long about 1 billion bushels in wheat, also. So, again, fundamentals don’t mean what they used to.
Minneapolis futures have traded within 20 cents of $20, mostly because of a global high-protein wheat shortage. Although that doesn’t really signal demand for soft-red winter, carryover strength has been supportive.
New-crop July has resistance at the key-reversal $10 high. Support begins at last week’s low of $8.96.
Cotton is losing the battle for acreage this year. The fiber needs to gain value relative to soybeans, corn and rice if its acreage is to gain ground. The market is expecting only 9.5 million acres to be planted in cotton this year. That’s down from 10.83 million acres in 2007 and 15.27 million in ’06. Even so, though, December cotton is trading below 80 cents — and that just won’t cut it, given current commodity prices. Nevertheless, expect improvement next year, since stocks are estimated to dwindle as a result of decreased acreage. December has resistance beginning just more than 78 cents; support is around 75 cents.
Rice Futures are trading at record-high levels. The grain is riding the wave with other commodities and, of course, is in the bidding war for acres, particularly with soybeans. The international supply situation remains tight. Iraq bought 50,000 metric tons from both Thailand and Vietnam last week. Both nations passed on U.S. bids, reportedly because prices were too high.
Thai prices are considerably higher this week, though, and Vietnam has reportedly put a moratorium on sales for March shipment because of tight supplies in that country. Iraq is expected to tender again soon, while Panama has tendered for 68,000 metric tons of U.S. milled rice.
Optimism that the resignation of Fidel Castro as Cuba’s president may heighten the chances of normalized trade relations also are supporting new-crop futures. The situation might mean big rice sales to the island nation just off our shores.
Live Cattle Futures continue to struggle under pressure from weak fundamentals. Product values have slipped, and traders have been concerned about future demand. Why? Because of worries over the economy and now the massive beef recall that was announced over the weekend of Feb. 16–17.
Feeders are looking for strength, but are having trouble without a confirmed top in corn. April Live Cattle might move to test support at $92.30.
Hogs look as if they’ve confirmed a winter low. However, they also seem to be having trouble building upward momentum. Large supplies and weekly slaughter numbers consistently higher than last year’s totals still are limiting cash prices. Moreover, since futures already hold a large premium relative to cash prices, the upside in futures is limited, as well. April is attempting to build support in the $64 range. However, we cannot rule out a retest of the contract low.
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