2012 Bi-Weekly Market Briefings
While it appears that soybeans are relying on fundamentals for price direction, it hasn’t hurt that crude oil seems to have bottomed also. January soybeans have gained more than $2 since Dec. 5 with strong export demand, particularly from China, lifting the market. Weather concerns in Brazil have added to the upturn. Some areas of that country got much-needed rain this past week, but other areas remain extremely dry. The market will keep an eye on the situation as their soybeans move toward maturity. Oil’s rebound has added support, and the the market is attempting to penetrate key resistance at $10.21. A close above that will make the upside retracement objectives of $11.13 and $12.16 viable targets for the March contract. However, the market is technically overbought, and a temporary setback is possible. Support remains the contract low of $9.80.
Based on current utilization, corn shouldn’t be moving higher. First off, smaller hog, cattle and poultry numbers have effectively slowed the need for feed. In addition, projected export numbers are more than a quarter less than they were last year. Lastly, ethanol use was trimmed 300 million bushels in the December report. This is not a picture that suggests a sustainable uptrend in the market. Yet, in the last month corn gained more than a dollar, and March is in position to test resistance just below $4.40. Keeping the market poised higher are concerns about the weather in South America and ’09 corn plantings in the United States (The current price structure seems to favor soybeans over corn). If March pushes above $4.40, the upside objectives of $4.62 and $4.92 will be initial targets.
Wheat is exceeding expectations. While the United States is finding it hard to garner much export business, concern about U.S. plantings and recent severe winter weather has given the market a strong boost. Technically, July is heavily overbought and due a downward correction. Support starts around $5.80. On the upside, retracement objectives start at $6.90, which is just above a huge October gap.
Cotton has moved higher despite sluggish world demand. Early private estimates indicate ’09 U.S. cotton acreage could be as low as 7.5 million acres, down another 20 percent. In anticipation of that, the market has trended higher, trying to hold acres. Declining fertilizer and fuel costs will help, but December Futures will still have to move substantially higher to make current price and an initial retracement objective of 63.5 cents. Current support for December is 52 cents.
The rice market is starting the year under pressure. After making good gains from the early-December low, March Futures have been hit negatively over the past week, and are testing support at $14.46. U.S. milled rice is still expensive, almost $200 per metric ton more than quotes in Vietnam and a mid-December sale by Thailand. Because of this, exports are slow, and U.S. mills are working at reduced levels. While U.S. rough rice exports are still moving, they are behind last year’s pace. It is widely anticipated that next week’s Supply/Demand report will make a downward revision in the U.S. production number. That could tighten further projected ending stocks, now set at 23.4 million cwt.
In poultry, commercial hatcheries in the 19-State Weekly Program set 203 million eggs in incubators during the last week. This number is down 7 percent from the corresponding week last year. Average hatchability for chicks hatched during the week was 84 percent. Average hatchability is calculated by dividing the number of chicks hatched in the week by the number of eggs set three weeks earlier. Broiler growers in the 19-State Weekly Program placed 166 million chicks for meat production, down 6 percent from this week last year. Cumulative placements from Dec. 30, 2007, through Dec. 27, 2008 were 8.96 billion, down 2 percent from the same period a year earlier.
Cattle futures are attempting to break out of a mostly sideways trading pattern. On-feed numbers are relatively small, so the market isn’t facing much supply-side pressure. However, both domestic and export demand are lagging. Recent strength in the dollar has further limited export potential. February Futures have overhead resistance near $90. If that is penetrated, the market might move toward retracement objectives at $92.50 and $95.25.
After charting a bullish key reversal on Dec. 31, February hogs gapped sharply higher and are trying to confirm a bottom. Domestic demand is expected to improve after the holidays, but recent strength in the dollar could hurt export demand. A seasonal decline in marketings should help the supply situation as well.
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