2012 Bi-Weekly Market Briefings
When it seems it can’t get any worse for cotton, it does. Use was lowered dramatically in the February Supply/Demand report. Domestic mill use is now projected at just 3.9 million bales, down 300,000 from January. Exports were trimmed another 500,000 bales to just 11.5 million. Ending stocks were raised to 7.7 million bales. Much of the U.S. change is related to a 1.5 million-bale drop in China’s use and a subsequent reduction of 1 million bales in their import needs.
For now the global economic situation is driving cotton use. On prices, the only positive is potentially smaller U.S. plantings in 2009, and that may not be as low as originally thought. Penetration of December’s key support level, 52 cents, may mean further declines in the short term.
Rice exports remain slow. This month’s USDA numbers were unchanged, except for milled exports, where 3 million cwt of long grain were trimmed. The overall projection for U.S. ending stocks is fairly tight, but that number will grow if exports don’t increase soon.
U.S. milled rice quotes have dropped below $600, and quotes from Vietnam have firmed, but remain near $425 per metric ton. At some point, U.S. milled rice sales must increase, or use estimates will decline further. For long grain, USDA is projecting an average farm price between $15–$16 per cwt. Considering futures are currently trading below $13, that projection suggests the market is underpriced.
Soybeans moved lower despite a positive report. USDA lowered projected ending stocks to 210 million bushels, with larger exports more than offsetting a smaller domestic crush. A smaller South American crop was acknowledged with cuts of almost 8 million metric tons for Brazil and Argentina. (Recent rains may add some beans back in subsequent reports.)
With all these positive numbers, it seems like the market should have moved higher. However, it appears these factors were already accounted for, and traders are looking at the possibility of substantially higher U.S. acreage in ’09. Anything above 78 million acres would be bearish, and some estimates are already exceeding 80 million. A November close below $8.90 would suggest a retest of the early December low of $7.96.
While many expected USDA to lower corn use numbers again, they were unchanged. The only change was in world numbers, where drought conditions cut Argentina’s production estimate by 3 million metric tons. This report, combined with much-improved weekly export numbers, has kept corn values steady to sideways. As the market attempts to keep acres from migrating to soybeans, new crop futures remain at a premium to old crop. Current support is $3.56 for March and $3.89 for September.
Wheat is testing support. After trading sideways for the last five or six weeks, wheat appears to be developing a slight downward bias. July futures are moving toward $5.50, or even the early-December low of $4.98. Large stocks, both international and domestic, have made it hard to be competitive in the export market. Dry weather in the Southern Plains and smaller U.S. plantings have provided support in an otherwise negative situation.
Cattle futures have come under renewed pressure this week as Wall Street seems unimpressed with the economic stimulus package just passed by Congress. Stock markets around the world continue to show weakness. This is spurring new concerns about beef demand, despite significantly lower supplies. April is testing support at the recent low of $83.60. Failure to hold there will bring the contract low of $82.45 back into play.
Hog futures are back on the defensive amid global economic weakness. The ailing markets are causing anxiety about pork demand. Supply numbers should decline this spring as farmers focus on row-crop planting, but weak demand will still be a key factor. Exports for 2008 were up 1.5 billion pounds over 2007, which means last year’s high prices were based on very strong demand. April looks to be headed for a retest of the $59.85 contract low.
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