2013 Bi-Weekly Market Briefings
Ongoing economic stress and a stronger dollar combined in recent days to drive November soybean futures below $8. The chart picture appears very negative. Overall fundamentals are not that bearish. Ending stocks are projected at 210 million bushels, and drought has reduced South American prospects. However, economic conditions don’t bode well for future demand, and U.S. farmers may plant more soybeans this year. The current downturn may push old crop contracts toward the early-December low of $7.77. If so, new crop — which is trading more than 50 cents below March — could be headed toward the $7–$7.25 range.
Corn is struggling to hold above December lows. Basis levels have strengthened in some areas as available stocks tighten; however, current demand isn’t strong enough to provide much pull. Potential buyers are tightening their belts. This paints a dismal picture. Corn has lost less ground than beans, and the current 2.1-to-1 price ratio suggests that corn is winning the battle for acreage. If that does happen to be the case, upside potential will be limited — future Supply/Demand Reports are anticipated to lower use and raise ending stocks toward 2 billion bushels. For the time being, new crop contracts are selling at a premium to old crop. December support, which is just below $3.50, should be a tough nut to crack.
Cotton is still moving lower. Further deterioration of the global economy doesn’t bode well for cotton over the next one to two years. Last year saw the smallest planted acreage in 25 years; this year’s is expected to be even smaller. The small crop has offered little support for this market, which is now well below the loan level. Recent talk of smaller-than-thought acreage cuts has put additional pressure on the market.
Rice futures moved lower after the market trimmed recent gains. For now stocks are holding above $12, but a retest of the recent $11.55 low is probable. The price of U.S. milled rice is competitive with Thai quotes, but it remains above the other major exporter, Vietnam. The potential for increased U.S. plantings in 2009 is also weighing on the market.
The wheat trend has shifted from sideways to downward. Ample supplies, both domestic and international, are limiting upside potential. Dry conditions in the Southern Plains have provided some support, but that is a limited area. It will take a major production problem to give the market a boost. Like with everything else, it appears the early-December low will be tested. For July wheat, that support is $4.98¼. After that, the next long-term support is $4.55. Basis levels have improved, but until U.S. wheat becomes more competitive, basis is vulnerable.
Demand for dairy products weakened in the fourth quarter of 2008 as production inched ahead. In 2008, cow numbers rose 1.2 percent, while yield per cow rose by less than 1 percent. It was the first time in many years that milk production rose because of increased herd size rather than yield per cow. In 2009, milk production is forecast to fall to 189.1 billion pounds. Herd size is forecast to decline slightly, to an average of 9.17 million cows, with increased dairy cow slaughter later in the year. Output per cow is expected to continue to rise, but by less than 1 percent. In addition, the milk-to-feed price ratio could drop further as falling milk prices trump any decline in feed prices.
Cheese prices are forecast much lower in 2009, at $1.180–$1.250 per pound. Likewise, butter prices will be lower, averaging $1.080–$1.180 per pound. Prices for dry products will also decline this year, but not as drastically, because prices for those products slid considerably in 2008. NDM prices are forecast at 80–86 cents per pound; whey at 16–19 cents per pound. Based on product price forecasts, milk prices will plunge this year. The Class IV price is expected to be $9.35–$10.15 per cwt. The Class III price is projected at $9.70–$10.40 per cwt. The all-milk price is expected to be $10.95–$11.65 per cwt.
Cattle futures continue to be pressured by the weakened global economy. With continued crude-oil losses and the Dow at its lowest level since 1997, traders are worried that demand for beef, both global and domestic, will take a big hit this year. Despite a brief attempt at recovery last week, the market is clearly trending lower. April appears to be headed for a retest of the recent contract low of $82.40.
Hogs are still trading near contract lows. On Feb. 27, June futures charted a bullish key reversal, signaling that an important low had been put in. However, there has been little follow-through. Because of economic conditions, this market is still concerned about worldwide pork demand. The strengthening dollar continues to add pressure as well. June has support at the contract low of $69.65. Tough resistance is seen between $76–$77.
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