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2013 Bi-Weekly Market Briefings

ACREAGE BATTLE TO BEGIN IN COMING WEEKS

As we head into February, look for the acreage battle between crops to become more heated. The crop insurance prices are based on the average of the February futures market, so look for volatility to increase as we head into this key month. Additionally, beginning March 1, the USDA will begin surveying for its perspective plantings report so the market will try to buy the necessary acreage before March 1.

While we have seen the ratio between corn and soybeans erode over the last month, the 2.5 to 1 ratio still favors more beans. In November, private estimates were forecasting that soybean acres could increase as much as 7 million acres. However, in recent weeks, those forecasts have been trimmed to around 5 million acres. While most of these acres will come from corn, a sizeable share could come from wheat and cotton to a lesser extent.

This larger acreage means production will be up in 2014, and the tight stocks the market has learned to manage over the last few years will now be upwards of 200 million bushels, maybe even more. If stocks get to this level and a record South American crop is realized, the 2014 November soybean chart will look much like the 2013 December corn chart.

As for the corn market, while acreage is forecast to be down in 2014, a good yield will mean U.S. corn supplies will remain comfortable. A yield close to the trend at 165 means U.S. stocks could be close to 2.5 billion bushels unless lower prices spur additional demand. Here in Arkansas, delivery contracts for October through December are still available, and producers have the opportunity to sell more direct into those markets if they are interested.

Cotton prices continue to rally, as the market is working to try and buy additional acres. While global supplies remain ample, the vast majority of these stocks are in China. When you remove China, the global cotton stocks-to-use ratio is at its second lowest level in the last 10 years. While tightening supplies are supportive to the market, cotton prices will remain volatile as China could decide to more aggressively sell its stocks at any time. Additionally, the National Cotton Council will release its 2014 acreage survey in February, which is usually an excellent indicator of where cotton acres will be. If this report shows a significant acreage increase, look for prices to potentially move lower.

As for rice, large global supplies and stiff competition have limited the U.S. ability to export rice. However, strong domestic demand continues to reduce supplies and support rice prices. The chart and table presented here show the estimated net returns for the different irrigated crops in Arkansas, and rice is forecast to outperform them all. With these types of returns, there is a lot of talk among farmers about increasing production.

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