2013 Bi-Weekly Market Briefings
The Cotton retreat continues. After index funds ballooned, the cotton market went sharply higher, and a sharp drop was certain. Futures outpaced the cash market as basis levels widened, and producer pricing was either limited or non-existent. Lighter export demand also keyed the decline. USDA numbers reflected lower demand for China and Turkey, both U.S. customers. That meant a 1.2 million-bale adjustment in expected exports and a 9.4 million-bale ending-stocks projection. The question is whether the market upturn triggered more planting for ’08. Some producers took advantage of the upturn, but it appeared commitments to wheat and soybeans limited in a big return to cotton. That suggests cotton needs to be in the mix in ’09, though bigger U.S. and world stocks will still be a limiting factor. December Futures have support at 80½ cents; then 78 and 75.
Rice is retaining upside potential. Futures have slipped lower amid the recent volatile bean and wheat situations, but still have good underlying fundamental support. Demand is so strong that Thailand’s export business is virtually halted, since it’s the only game in town. Vietnam is oversold on available supplies, and that has left the Philippines scurrying to cover a major tender. Thailand has a commitment from Vietnam, but the question is, how? The U.S. is still moving rice in the export market, and a slight increase in projected exports in this month’s Supply-Demand Report reflected that. A 2 million-metric-ton increase in India’s production allowed the world number to exceed use for the first time in seven or eight years and for projected stocks to climb slightly.
In the end, there’s still rice demand, and that should spell higher price potential. For now, futures are sliding, but showing more resiliency than the other commodities. September has good support at the 38-percent retracement objective of $15.49, if not before. Last week’s $17.71 high is resistance, at least for now.
Wheat’s rally is stalling again. It rallied to make new contract highs last week, but now seems headed back to recent $10 support. The market is still extremely volatile, with the U.S. crop rating less than good. The hard-red crop has deteriorated over the winter, but has time to improve. This obviously depends on weather in the next 30–60 days. The condition of the world crop is similar, suggesting there may provide little relief from the tight stocks situation.
The USDA raised exports in last week’s report, which lowered projected carryover to a 242 million-bushel 60-year low. However, soft-red isn’t really in short supply, and a good crop appears to be developing. Should support at $10 be penetrated, the support is $8.96.
Corn is showing less volatility and greater upside potential. Although it has been hit in the recent sell off, it has shown more resiliency. Fundamentals, including strong use for ’08–09 are positive. Feed use may suffer in the future, and some delay is expected in the growing ethanol demand. Overall, however, use is projected as equal to or greater than ’07–08’s 12.96 billion-bushel usage. That means acreage can’t slip much, and some private firms expect plantings of 86 million—88 million acres. March 31 planting intentions in this range should be positive for the market. December support is $5.30–$5.40; retracement objectives are $5.08–$4.62. Resistance is the recent $5.88¼ contract high.
Soybean charts have a bearish appearance. The market remains very volatile, but it’s down. The question is, how far? China now appears to have satisfied its needs by buying big quantities of beans and oil. South America, where a very good crop apparently is being harvested, may meet other potential needs. Private estimates put the Brazilian crop at 62.4 million metric tons, well above the U.S.’s 61 million estimate. As other supplies rise, the weaker dollar may not be enough to hold customer interest.
Demand is expected to be light ahead of the March 31 Planting Intentions Report. Private estimates now put U.S. plantings at as much as 72 million acres, a huge increase from ’07. November futures gapped below trend-line support and should test the next level at $11.67½. A bear flag formation has a downside objective $1 lower.
In the Dairy sector, Milk prices fell in February but may average a bit higher in March. The Class III price was $19.32 for January, but fell to $17.03 after. March’s Class III may average a little higher than February. National Ag Statistics Service prices for the first week used for the March Class III were $2.0452 a pound for 40-pound cheddar blocks and $2.1055 for cheddar barrels. Chicago Mercantile Exchange cheese prices have fallen since then, beginning Feb. 28. March 17, 40-pound blocks had fallen 36 cents to $1.73 a pound and barrels, 33.75 cents to $1.69 a pound.
NASS survey prices for the March Class III will be driven by CME cheese prices Feb. 18–March 17. So if CME cheese prices fall much further, the March Class III price may not finish higher than February’s.
Cattle futures are beginning to recover a bit from the recent selloff that took many contracts to new lows. Improving beef values and ideas demand will pick up after Easter are supportive. April has overcome resistance at $90.75, negating a bearish reversal and making further gains possible. April feeders have downtrending resistance near $103.
Hog futures have moved to new lows in recent days. Supply side concerns continue to weigh on the market. Weekly kills have been well ahead of last year’s pace and where we should be based on USDA’s quarterly inventory report. However, rumors that China is buying more U.S. pork and indications that the market is oversold have given the market a boost this week. Nearby April has been limited by its premium to cash, but other contracts have rebounded a bit. June has support at the low of $70.01, and initial resistance at the chart gap between $72.70 and $72.90.
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