2012 Bi-Weekly Market Briefings
Soybeans may be on a slippery slope. Earlier this week, a reduced production projection by Brazil, who is in a drought, brought on a market decline. On the other side of the world, China has been buying beans to prop up a domestic market that is expected to end, or shift to South America. An official ’09 planting intention number won’t be released until late March, but the general thought is wheat and cotton acres have moved to beans. Wheat plantings are down more than 4 million acres, and cotton is projected lower for the third year in a row. Put 78 or 80 million acres in the equation and soybeans turn extremely bearish, assuming normal weather and yields. Technically, the market turned bearish when March Futures penetrated support at $9.60, and suggested a move to retracement objectives of $9.20 and $8.87. Long-term, major support is just below $8.
Corn exports are improving. Almost halfway through the 2009–10 marketing year, corn exports are just more than 50 percent of year-ago levels. But in the last several weeks, as world wheat supplies have diminished, export numbers have increased. Stateside, though, use is unlikely to grow anytime soon. Low livestock numbers are translating into low domestic feed use, and cheap crude oil is squashing the profitability of ethanol. In fact, recent reports have trimmed ethanol use by 400 million bushels, with more trimming likely. However, corn doesn’t have the downside propensity that beans appear to have. While March corn broke a shallow uptrend earlier this week, it is holding flat support near $3.60. A close below that would suggest a retest of support at the $3.06 contract low. Resistance at $4 for March and $4.50 for December will stand for some time.
Based on world supplies, wheat has limited upside. Exports are dismal, as the United States remains the last option in a competitive market situation. This year, producers reduced plantings by more than 4 million acres, 2.9 million of which was soft red. To top it off, much of the wheat that was planted has been wrecked by drought in the Southern Plains, with 60 percent rated as “poor to very poor.” If the drought persists or spreads, it will boost price potential. July has support at $5.75 and then $5. Resistance at $6.68 stands between the market and an upside retracement objective at $6.90.
Rice is under renewed pressure. U.S. milled rice values have declined slightly, but remain high at almost $600 per ton. Discounts offered by some mills have drawn little interest. Vietnam has increased their minimum export price to $420 after big sales to the Philippines, Iraq and Cuba. India is still banning exports, but that may change. U.S. rough rice exports, while moving along, are below year-ago levels. All this translates into a downtrend in futures. March Futures hit $11.55 last week, just a dime above the 62 percent retracement objective of last year’s big upmove. Inability to hold here would be extremely bearish.
2009 cotton plantings are up in the air. Current acreage estimates vary from “unchanged” to a 20 percent or more decline .The first survey information will be released by the National Cotton Council on Feb. 14. Spreading drought conditions in Texas could change some of that data, but this report is generally a good barometer of producer intentions. For now, cotton is struggling with big supplies and falling demand. Neither of these will change quickly, but a smaller ’09 crop would go a long way toward providing relief. Current new crop resistance is 57.2 cents. Movement above that is questionable, but it could happen before this crop is harvested.
Cattle futures got some bullish news this week in the form of USDA’s semi-annual cattle inventory report. It reported the smallest herd in 50 years and the smallest calf crop in 57 years. This should support feeders, particularly in the future. The market is still concerned with the economy and what effects it will have on meat demand. Live futures are trading at around a $4 premium to cash prices, and that could limit upside in the meantime.
Hog futures are trading at or near contract low levels. Packer margins are still very much in the red, and that is keeping a lid on prices. Marketings are expected to remain steady for a few more weeks, but will drop off sharply in the spring as farmers focus on row-crop endeavors. The question of demand will also limit upside, as traders worry that global economic conditions will significantly impact demand for pork.
In poultry, commercial hatcheries in the 19-State Weekly Program set 201 million eggs in incubators. This number is down 8 percent from the corresponding week last year. Average hatchability for chicks hatched during the week was 84 percent. Broiler growers in the 19-State Weekly Program placed 168 million chicks for meat production, down 6 percent from this week last year. Cumulative placements from Dec. 28, 2008, through Jan. 24, 2009 were 672 million, down 6 percent from the same period a year earlier.
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