2012 Bi-Weekly Market Briefings
Cotton made a strong rebound following sharp losses over the previous five weeks. Growing export demand, principally in China, led USDA to increase their projected 2009-10 export numbers by a million bales in the February Supply/Demand Report. After recent losses of almost 10 cents, the March contract used the revised numbers as a spring board to reach gains of more than 8 cents in a week. Over that same time period, though, new-crop December has rebounded only 4.5 cents. In addition, the National Cotton Council recently announced it was expecting more plantings in 2010. A planting survey conducted by the group in early January suggested a nearly 10-percent increase in the United States. All cotton was projected at 10.09 million acres, compared to 9.15 in 2009. Good yields would produce a crop of 17-18 million bales. However, December numbers will probably have to reach or exceed the recent high of 78.25 cents to get to that acreage.
Rice continued in a consolidation pattern, as producers make plans for bigger acreage in 2010. In the February Supply/Demand Report, USDA made minor adjustments in U.S. and world numbers. The most noteworthy change was a minor increase in domestic usage and exports. Mill activity is good, as recent relief purchases for Haiti and sales to Iraq gave the market a near-term boost. Prospects of sales to South America are also positive. However, the international market is somewhat unpredictable. Thai price levels remain high, while Vietnam has made record sales. Sales to the Philippines seem to be on hold, because Vietnam – in an effort to get some immediate cash flow – has retrenched and moved rice to other areas at lower price levels. As we move forward, be ready to price 2010 production. While the market appears to have upside potential, it may be limited if producers add substantial acreage.
Soybean numbers firmed after USDA increased its export projection by 25 million bushels. In addition, the February Supply/Demand Report added 10 million bushels to domestic crush and lowered projected ending stocks to 210 million bushels. All those changes combined make for a much tighter situation. However, expectations for the South American crop grew, and there is little question it will be huge. Concerns about China switching to South America for purchases, and perhaps even canceling prior U.S. sales, will keep the market on edge. The further tightening of credit in China may also be a factor. Recent shipments against prior sales remain good. While retracement objectives for March futures at $9.72 and $9.92 are possible, there is substantial resistance around $9.60. New-crop November has shown less upward propensity and will need help to revisit $9.50.
While it would be difficult to say corn has made a temporary bottom, the market appears to have stabilized with the help of an improved Supply/Demand Report.
USDA raised ethanol usage by 100 million bushels, offsetting their reduced export projection and cutting 45 million bushels off the ending stocks for 2009-10. At 1.72 billion bushels, ending stocks will be a comfortable cushion, particularly if 2010 plantings reach the oft-mentioned 90 million acres. If September rallies toward $4, producers should be prepared to price a part of expected 2010 production.
Big supplies of wheat, both global and domestic, are limiting upside potential. In the past, though, grain prices have made better-than-expected moves as a result of action in outside markets. When the dollar slides, oil and equity markets climb and, in turn, give wheat a bump. So, there's room for a little hope. However, July may still move below the October low of $4.84, and even smaller U.S. plantings are not enough to offset burdensome supplies.
Cattle futures have seen strength in recent weeks. April’s move above $91.50 confirms a topside breakout and signals that further gains are likely. However, the market has come under pressure, because the Chinese Central Bank is taking steps to limit credit usage. In addition, in recent days, U.S. stock markets fell sharply, and the dollar saw big gains, both of which are negative for commodities. Improved demand, combined with weather-related animal performance issues, is helping the market work through supplies.
Hogs stabilized after showing signs of topping in mid-January. The long-term trend is still up, but April needs to move above resistance at $69.85 to suggest further gains are likely. Pork demand is the key to this market, and there are concerns right now that harsh weather conditions in the eastern United States are hampering meat demand.
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