2012 Bi-Weekly Market Briefings
Corn was hit with a double-barrel load of bearish news in the January Supply/Demand Report. To start, the market was expecting USDA to make a downward revision in production, but was greeted instead by an 81-million-bushel increase. Second, the report lowered utilization projections — Ethanol use was trimmed another 100 million bushels, feed use 50 million bushels and exports 50 million bushels. The net result was projected ending stocks of 1.79 billion bushels and a limit decline in futures.
After a quick loss of nearly 50 cents, the market has stabilized and is attempting to retrace. The huge carryover reduces the need for a big expansion in ’09; however, corn won’t let soybeans move too far without following. Key resistance is the recent high of $4.28¼ for March and $4.58 for September. Support is just above $3.60 for March and $3.90 for September.
Soybeans were also pressured by January’s report. Production was raised 38 million bushels, while use estimates were mixed. Domestic crush declined 30 million bushels, and exports increased 50 million bushels (reflecting continued strong buying by China). The net result is a projected stock of 225 million bushels, a 20-million-bushel increase.
Both soybean and corn prices are being influenced by weather in South America. Reports indicate Argentina is experiencing its worst drought in almost 50 years. Forecasts show a chance of late-January rain, which could help soybeans more than corn. With soft red wheat plantings down more than 25 percent and cotton acreage projected to decline, U.S. soybean acreage is expected to expand in ’09. The long-term outlook for beans could be bearish if total acreage grows to 80 million or more. Current resistance is the recent high of $10.60 for March and $10.38 for November. Support is $9.60 for March and $9.43 for November.
Wheat acreage has registered a big decline. Winter wheat, as a whole, plunged 8.8 percent, down 4.1 million acres from last year. Soft red wheat was a big part of that decline, down 26 percent (2.91 million acres). That should be positive; however, wheat generally follows corn and beans. Slow exports and a huge world crop will continue to limit upside potential. Concerns over potential weather damage have helped boost the market, but actual loss won’t be determined until spring. Resistance for July Futures is the recent high of $6.68, which came up short of the 38-percent retracement objective of $6.90. Support is the early-December low of $4.98. Basis levels have improved, but they remain extremely wide, reflecting poor export demand.
The January report trimmed the ’08 cotton crop by 570,000 bales, with both harvested acreage and yield lowered. Unfortunately, USDA also lowered utilization, with domestic mill use down 100,000 bales and exports down 250,000 bales. The net result was projected ending stocks of 6.9 million bales, a 200,000-bale reduction. China’s projected utilization declined 1.5 million bales, reducing their import needs. With everything factored in, world stocks are projected to be 58.77 million bales, up from last month.
Economic conditions continue to be reflected in cotton use, a trend that might not be reversed for another one-two years. Upside potential for both old and new crop cotton is limited. However, the market could begin to respond later this spring when producers complete their ’09 plans. Most projections have acreage declining, with some down 20 percent or more. December resistance is 57.2 cents; support starts at 52 cents.
The rice numbers are a surprise. As anticipated, ’08 yield was reduced; however, harvest acreage was increased by 60,000 acres, leaving overall production virtually unchanged. In addition, USDA reduced imports by 4.5 million cwt, then turned around and dropped exports by 5 million cwt. Ending stocks are projected to be a fairly tight 23.2 million cwt.
USDA has raised their projected price range $1.35, to $16.50–$17.50. For long grain, the projected average price range is $15.50–$16.50. That holds out a promise that may be difficult to fill considering the current state of the market. The Thai market has firmed as a result of a government-intervention program, with new crop quotes near $600. However, in reality, the only sales being made are old crop intervention stocks, which are generally below $500 per metric ton. Confirmed sales by Vietnam are just more than $400.
That leaves the United States with current quotes around $625 per metric ton and few sales, which is limiting upside potential. In fact, futures remain under pressure and March is testing support at the early-December low of $13.03. Weekly chart support on the same date is $12.85. The next major support is around $11.80.
Despite improving beef processing margins, cattle futures are down again. At a glance, things look good — Wholesale beef prices are up, feed costs are down and feedlot inventories are manageable. However, for the time being, demand-side concerns are driving the market. Carryover from outside markets continues to be a factor as well. February has initial support at the recent low of $82.25.
February hogs are beginning to consolidate in a narrow range. The market is holding above the recent contract low of $58.90, but keeps running into resistance above $60. Right now, the market is focusing on demand concerns and weakness in the product market. Weakness in outside markets is also adding negative pressure.
Uniform milk prices have tumbled. For December, the uniform price in the Southeast region was $16.85 per hundredweight of milk at 3.5 percent butterfat. That’s $2.36 lower than November and $5.59 lower than last December. Class I utilization was 66.68 percent in December, down 1.28 percent from November and up 0.51 percent from last December.
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The December Class III price was $15.28. The January Class III price should be around $10.70. The December Class IV price was $10.35, but could fall to around $9.80 in January. Class III futures have dropped below $10 for February and March, don’t reach $11 until June and only peak out at $13.70 for December ’09. These prices mean considerable financial stress for the dairy industry. While feed and other input items costs have declined some, they have not declined nearly as much as milk prices.