2012 Bi-Weekly Market Briefings
The SOYBEAN rally still has upside potential. The February supply/demand report left the U.S. crop unchanged. Argentina’s production, however, was trimmed by a million metric tons. That adjustment was offset by a similar increase in Brazil’s production. Early harvest yields in Brazil are excellent, and others have estimated production there at 70 million metric tons or higher. Even with the recent increase, the U.S. estimate is just 68.5 million metric tons. China continues to buy U.S. soybeans, but a small cancellation has the market concerned. When beans are more readily available, China likely will move buying to the Southern Hemisphere. The question is whether the market is satisfied that U.S. plantings will meet needs. The latest stocks report for corn suggests more acres may be needed for that crop, and price will decide what gets the acres.
CORN was surprised by the USDA yet again. Pre-report expectations were for a small increase in corn usage and a slight downward adjustment in ending stocks. The USDA ended up raising the food, seed and industrial usage category by 70 million bushels with 50 million bushels of that in ethanol. Ending stocks were left at an ever-tightening level of just 675 million bushels, less than three weeks’ supply. That gives a stocks-to-use ratio of just five percent, the lowest since 1996. The current soybean-to-corn price ratio of 2.25 seems to be leaning toward soybeans. Don’t expect corn to take this lying down. Look for more price action over the next 60–90 days. March is 60 cents below the 2008 top of $7.65, and a move to that level seems possible. For December, the contract high of $6.60 on July 15, 2008 is a likely initial upside objective. March support starts at $6.40–$6.60. For December, it is the $5.85–$5.90 range.
The WHEAT rally was reinforced by potential cold weather damage. The U.S. Great Plains crop has been plagued by drought conditions, and the feeling is recent cold weather hasn’t helped. Weather woes have partially offset fears about the political turmoil in Egypt. Egypt is a big importer of wheat, and the current unrest could limit buying or, in the end, stimulate buying. Nevertheless, the United States is the current supplier of choice for the export market, and that demand has added fire to the uptrend, which has gained momentum since the first of the year. Long-term chart objectives at $9.52 and $9.87 are attainable.
RICE futures have been on a roller coaster ride. Big upmoves have been followed by big retracements, with recent moves hitting resistance just above $16.30. While futures reflect strong buying by outside interests (investment funds), there’s a big disconnect between that and import interests. Cash bids reflect a widening basis situation. Buying interests are stimulated by concerns that 2011 plantings will be substantially lower than last year. While that is true, USDA reduced export projections for long-grain by one million hundredweight and increased stocks to 42.9 million hundredweight. Total rice stocks are projected to be a hefty 52.8 million hundredweight. So, even with smaller plantings, stocks will be ample. U.S. milled rice bids remain at a wide premium to Asian offerings. New business is needed to keep mills operating at capacity.
COTTON rocketed to new highs. At this writing, old-crop March stands less than a dime away from $2. While that seemed unimaginable just weeks ago, it is now a very attainable target. New-crop December has topped $1.32 and suggests plantings in 2011 may well exceed the 10–15 percent increase that has been suggested. The National Cotton Council’s planting survey projected a 14 percent increase for a total of 12.5 million acres. Their production estimate, based on state average yields and projected abandonment, is less than a million bales above last year’s 18.3 million bales. That won’t add much to tight U.S. stocks. Just a week ago at the ARFB Cotton Division meeting, most producers suggested cotton acreage would be 15–30 percent higher than last year. NCC figures put Arkansas just eight percent higher. Current price levels could up the ante. If you plan on planting more acres, lock in this $1.25-plus price right now.
April HOGS spiked higher Thursday. Extreme winter weather across much of the country is undoubtedly limiting weight gain. Prospects for strong exports throughout the market year are also supportive. The market is overbought, and this weather is likely causing a backlog of market-ready hogs that will come to market soon. These factors could combine to cause some short-term weakness. April Hogs have resistance at the recent high of $94.52 and support above $90.
Many live CATTLE contracts charted an upward key reversal on Thursday. This sets April up for a retest of resistance around $115 and June for a retest of the contract high of $115.60. The upside for the nearby February contract has been limited by weakness in cutout values. Feeders have been following live cattle higher, but higher corn prices are tempering their reaction at this point.
In DAIRY, the weather and its effect on dairy product movement from farm to consumer was a factor in most states. Consumers stocked up on milk along with other food staples causing increased bottling, especially before the storm. Production was heavier for manufactured products such as dips and sour cream for Super Bowl related activities. Current milk intakes are mostly steady-to-higher seasonally throughout the country. The announced price for Class I milk for February was $19.69, up $.69 from January. Grade AA butter closed at $2.1. The weekly average for Grade AA is $2.1. Cheese Barrels closed at $1.775 and 40-pound blocks at $1.81. The weekly average for barrels is $1.741, up $.0965, and blocks, $1.7785, up $.1050.
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