2012 Bi-Weekly Market Briefings
Soybeans are in the midst of a two-week rally, but it is questionable whether it will continue. South American weather and the ongoing Washington saga are counterbalance as traders are reluctant to go full bore with the “fiscal cliff” scenario hanging over their heads. Strong Chinese demand through the first quarter of 2013 should limit downside. China has been pursuing vegetable oil, which has sent palm oil higher while boosting soy oil. South American weather is keeping the market anxious about crop prospects, which is also supportive. Old crop January has hit resistance near $14.60, with an additional layer between $14.86 and $15.00. November 2013 reached last month’s breakout level at $13.20 and could move higher at some point as the soybean/corn price ratio remains favorable to corn at 2.06. Pulling additional acreage to soybeans means price must rise relative to corn.
Corn rallied to resistance above $7.60, but hasn’t had enough export demand to push through to the next level at $7.75. While Brazil’s old crop corn supplies were supposedly dwindling, they have maintained strong sales, and it appears this could continue through January 2013. On the opposite side of the corn, wet weather continues to hinder planting and crop development in Argentina. This could push additional acreage toward soybeans. Technically, March futures remain in a sideward band with support at $7.10 to $7.15. A close outside the band would indicate further movement in the direction of the breakout. New crop December is trading the same pattern, with resistance around $6.40 to $6.45 and support from $6.00 to $6.05.
2013 July wheat continues to make runs to the upside but has been unable to move above resistance at $9.00. Fresh export demand from Egypt gave the market its latest push. That was amplified by the worsening crop conditions in the hard red wheat Plains area. Upside potential is being limited by the ongoing “fiscal cliff” situation in Washington and an uncompetitive price. While the market could move higher, producers should consider initiating 2013 crop pricing with July above $8.75.
Cotton exports have provided a boost, lifting price to the highest level in more than a month. Exports have exceeded 250,000 bales for the last four weeks. However, each upturn in the market turns the demand off. It now appears buyers back away when futures exceed 74 cents, with many traders suggesting 70 to 72 cents as the commercial buying level. As indicated previously, 80 million bales plus of stocks will limit upside potential, and it will take more than one year to correct this situation. 2013 planted acreage will decline with some areas, like the U.S., making big cuts; others will be slower to adjust. China continues to support its growers at a high level, which is essentially pushing mills to manmade fibers that are priced at about half the price of cotton.
January rice futures extended the recent upturn to resistance at $15.55 before losing momentum. China appears to be in a rice buying mood as they look to rebuild depleted stocks. (Sounds a little like what happened in cotton.) Thailand is supposedly working on a deal with China. Thailand has the supply, and if it works, China has the demand. Here in the U.S., mills are running at full capacity and growers are reluctant sellers. Technically, January futures have retracement objectives at $15.59 and $15.82.
Live cattle futures have retreated from recent highs and taken about $3 off the market. Available supplies of market-ready animals are sharply higher with show lists indicating a 40,000-animal increase over last week. Packers will use this as an opportunity to reduce bids and help their negative cutout margins. Feeder cattle futures are consolidating in an increasingly narrow range, with the first level of support at $144.25 and resistance just below $148.
Hog futures appear to be topping. February recently set a new contract high at $88.25 and has since taken more than $2 off the market, charting a huge bearish reversal Dec. 3. Lower slaughter weights are a positive, but rapidly declining packer margins will likely have an impact on cash bids in the coming weeks.
The uniform price in Federal Order 6 was $22.35 per hundredweight of milk at 3.5 percent butterfat for October. This is $1.48 higher than the previous month and $0.56 per hundredweight higher compared with Oct. 2011. The announced price for Dec. Class I is $25.19, Class II is $12.67, and Class III is $14.63. Price for is up slightly, but lower input costs have not trickled down to the producer level. Class I utilization was 75.05 percent in Oct., 5.19 percent higher compared Sept. 2012 and 8.42 percent above Oct. 2011. The USDA estimates total U.S. milk production this Sept. was 15.71 billion pounds, a decrease of 0.5 percent from Sept. 2011 and a decrease of 1.2 percent compared with Aug. 2012. Total cheese output was 871 million pounds. Butter production was 136 million pounds.
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