Bi-Weekly Market Briefings for 05-18-07
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Soybeans are getting a boost from the USDA's first estimate of the '07 crop, just under 2.75 billion bushels. That reflects the March 30 Planting Intentions Report of 67.1 million acres and a 41½ bushels-an-acre yield.
Excellent corn-planting weather has lessened the potential impact of acres moving back to beans. Thus, the market is left anticipating a much shorter 2007 crop.
Higher palm oil values and an expected rise in soy oil demand for biodiesel have helped ratchet bean prices higher. This has occurred in spite of a huge South American crop and '07 U.S. ending stocks projected at 610 million bushels.
Expect smaller plantings and strong use to reduce '08 stocks to 320 million.
Market response has November Futures testing resistance at $8, with potential to move toward more resistance at $8.28 and $8.43. Key support remains near $7.50.
Corn planting is progressing to normal levels. As of May 13, 78 percent of the U.S. crop was planted. That equalled the five-year average.
Growing concerns in late April had the market adjusting to a potential shift back to beans. It now appears that will be minimal, since the '07 U.S. likely will plant more than 89 million acres.
Current yield projections reflect slightly later planting dates, so overall production impact will be minimal. That should reduce potential downside price movement.
Weather will stay a key factor, as the market anticipates its impact on yield and production. Initial support for September Futures starts just below $3.60. Additional long-term support is $3.35.
˜The Wheat market continues to show volatility. It's still on a roller coaster, with big weekly price swings the norm.
No doubt, the Easter freeze brought major damage to soft-red production, especially in Arkansas. Early May's quality tour results showed that hard red was damaged less than thought. The higher-than-expected USDA Crop Estimate on May 11 supported that.
On the world scene, we still expect use to exceed production with further tightening of stocks. Upside potential appears limited, with July Futures encountering resistance at $4.80. A breakout of this range will suggest further movement in that direction.
Topside, prior $5.18 and $5.30 highs will come into play. Downside, $4.60 and $4.40 are the next levels of support.
Cotton has plummeted to a new contract low. Export demand is on the rise, 2007 plantings will be down, '07–08 ending stocks will be lower, and the market still continues to slip.
The USDA projects an 18.8 million-bale crop this year, with exports of 17.5 million for marketing year '07–08. Total use for that year will trim ending stocks by 3.1 million bales, to 6.4 million.
That's all based on big exports to China, which this marketing year didn't materialize as early as expected.
With a 9.5 million-bale carryover expected this year, there doesn't seem to be much upside potential.
Technically, December made a new contract low and is heavily oversold. Also, the Relative Strength Index is showing a divergence with price action, which often indicates a bottom.
Any rebound must first clear trend-line resistance at 53 cents, then further resistance at 54. The recent price slide "retracement" objectives are 55, 56 and 57 cents.
Rice market activity remains quiet, and the overall story is unchanged. U.S. milled exports are slow, with most mills operating at sharply reduced levels. Even rough rice exports are slow, with bids at $10–$15 a metric ton below offers.
The international market is pretty steady, with Thailand and Vietnam shipping against prior sales. Current business activity is slow. Vietnam is quoting around $300 a metric ton and Thailand, $320–$325.
The U.S. crop is all but planted and is expected to be 183 million hundredweight. Overall stocks probably will decline to 23.7 million hundredweight, with just 16.6 million long grain. The USDA forecasts a $10.25–$10.75-a-hundredweight average price.
November Futures are struggling to hold above $11, with additional support at $10.80, then $10.60. The recent $11.40 spike high will be major resistance.
Live Cattle prices are showing signs of recovery after closing below key support levels, and are beginning to strengthen. Cash prices for beef remain firm, supporting higher futures.
Cattle prices will find additional support from an increase in demand brought on by the summer grilling season.
Lean Hog prices still are trading choppy and are unable to trade the same direction more than two days in a row.
Tight hog supplies had caused packers to bid up prices to keep slaughter facilities going. However, this led to packers operating on negative margins.
In the past week, prices have fallen as packers slowed hog buys to try to improve margins. We expect cash prices to strengthen in coming days, as those margins are finally back in the black — and that should help support future prices.
Downside potential is limited in this market, given the tight supplies and seasonally strong demand.
Contact:
• Gene Martin (501) 228-1330, gene.martin@arfb.com .
• Brandy Carroll (501) 228-1268, brandy.carroll@arfb.com .
• Bruce Tencleve (501) 228-1856, bruce.tencleve@arfb.com .
• Matt King (501) 228-1297, matt.king@arfb.com .
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