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In the Market: Sept. 12, 2013

Biweekly analysis and commentary from Arkansas Farm Bureau's ag economists

9/12/2013 at 12:00 a.m.

By Brandy Carroll, Matt King & Bruce Tencleve
ARFB economists

Poultry industry plans to make more chickens

Commercial hatcheries in the 19-state weekly program set 195 million eggs in incubators during the week ending Sept. 7, up 5 percent from the eggs set the corresponding week a year earlier. Average hatchability for chicks hatched during the week was 84 percent. Average hatchability is calculated by dividing chicks hatched during the week by eggs set three weeks earlier. Broiler growers in the program placed 165 million chicks for meat production during the week ending Sept. 7, up 3 percent from the comparable week a year earlier. Cumulative placements from Dec. 30, 2012 through Sept. 7 for the 19-state total were 5.95 billion, up 1 percent from the same period a year earlier. From a consumer perspective, we are seeing poultry production increase, because it is a cheaper alternative to other meats. Also, with declining corn prices, processing chicken is becoming more profitable. From a grower perspective, this means full flocks and potentially less down time between flocks.


Soybean futures are dependent on the weather right now. The crop ratings showed minor deterioration this week, with 52 percent of the crop now rated good to excellent. That was not as much as traders were expecting, though, and that added pressure early in the week. The November chart is looking toppy, but a close below the bottom of the gap at $13.31 ½ is needed to confirm that a top has been put in. Traders are expecting USDA to lower their national average soybean yield estimate, with the average trade guess coming in at 41.2 bushels per acre, compared with the August estimate of 42.6 bushels. That results in a total production down 115 million bushels from USDA’s August estimate. However, world carryover stocks are at a record high. That fact, coupled with a price ratio that favors beans over corn and could result in more soybean acres in South America, will likely limit the upside potential of the market.


Wheat futures have been under pressure, mostly from weakness in corn futures. Minor, if any, changes are expected in this week’s USDA reports for wheat. It is likely this market will continue to follow corn. From a technical standpoint, wheat contracts are chopping along just above support at contract lows. For December, that is near $6.35, while overhead trendline resistance is near $6.75. New crop July has support at $6.57 and trendline resistance near $7.20.


Corn futures are locked in a downtrend. The trade is expecting USDA to increase their national average corn yield estimate from the initial estimate of 154 bushels per acre. December corn is holding above support at the contract low of $4.47 for the time being, but that is likely to change when USDA releases their new production estimate at the end of the week. Any strength will be met with downtrending resistance currently near $4.95. Basis levels are weakening in many areas as new crop corn from the South is shipped to the Midwest and old crop, farm-stored corn comes to market to empty the bins as well. 


Cotton prices began the week on a positive note. The market sold off hard over the past couple of weeks, but found support at the bottom of a trading channel that has held the market for seven months. For December, support is at 81.72 cents. The market had moved into oversold territory, and that has resulted in some buying interest. Huge weekly export sales of 163,300 running bales also added to the bullish undertone in the cotton market. Look for the USDA report to provide additional support, as hot, dry conditions have likely cut into the yield potential of the crop.


Rice futures have been under significant pressure in recent days. Harvest is now in full swing, and early yield reports are good. Nationwide, USDA says 24 percent of the crop had been harvested by the end of last week. Arkansas farmers have 11 percent of the crop out, compared with a five-year average of 30 percent. The crop is in good shape, with USDA reporting that 71 percent of the crop is rated good to excellent. November rice futures have crashed through several layers of chart support in the selloff, but so far have held at trendline support at $15.25. Tough competition on the export front, with U.S. rice prices coming in approximately $200 more per ton than Thai prices, will continue to be a challenge for the U.S. rice industry.


Cattle charts are looking bearish after futures charted a bearish reversal last week. December has trendline support near $128.50. A close below the trendline would likely set the market up for a retest of support just below $127. Futures’ premium-to-cash prices are adding to the weaker undertone. 


Hog futures are moving to new contract highs on a nearly daily basis. Cash hogs are being supported by hot weather, which is keeping hog weights down and in some cases limiting marketings. However, forecasts for warmer-than-average temperatures to continue across the middle of the country through at least September 20 have sparked optimism that grilling season is not over and meat demand will remain solid for a few more weeks. It is unlikely that the upward momentum will be sustained much longer, though, as marketings should begin to increase. Weakness in corn futures is bearish for deferred hogs, as traders worry that it will result in herd expansion.

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