ARKANSAS FARM BUREAU ELECTRONIC NEWSLETTER
Bi-Weekly Market Briefings for 09-21-2007
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Wheat hit $9, and may go higher yet, following the September USDA report. But, that soon may be eclipsed as the Australian drought puts their crop in question. Just this week, the official Australian estimate was lowered from 22.5 million metric tonnes to 15.5 mmt. While that was near the lower end of current expectations, there are whispers suggesting it may be cut further if current weather persists.
An already-tight world stocks situation just got tighter, and since wheat is a food grain, further gains are possible as countries attempt to cover their needs. Current resistance for December is the $9.07 contract high. A move above this could open the market to the double-digit level, and that would tend to drag new crop higher — with the ’08 July contract high of $6.38 providing formidable resistance. Producers may want to consider using options to lock in a floor and leave the market open to potential further gains. This is opposed to using a forward contract, which would lock in bushels, as well as a wide basis.
As the big harvest begins, Corn is holding steady. USDA raised the projected corn yield 3 bushels per acre to 155.8 and the market proceeded to move higher on strength in beans and wheat.
For now, the market remains in a 40-45 cent trading range with resistance at $3.60 to $3.72 and support just below $3.40 and then at $3.25. A little slow down in new ethanol facilities is not a major concern, as overall export demand and feed use are expected to hold ending stocks at 1.69 billion bushels.
Potential for beans pulling back some of last year’s lost acreage will keep ’08 price levels firm, and ’07 downside now appears limited. In fact, the performance of corn following the USDA report suggests the low probably has been made.
Soybeans are soaring, as potential frost damage in the upper- Midwest is making the market skittish. This year’s yield is now projected at just 41.4 bushels per acre, below both the ’05 and ’06 yields. Combined with a much smaller acreage, that fact already has the market nervous. So, any potential reduction in yield just stokes the fire.
November Futures gapped higher to begin this week and moved to a new contract high of $9.74½. That is just a quarter away from the magical $10 figure. Above that is the ’04 high of $10.64.
There is little question that wheat and soybean acreage will expand in ’08. Lower production costs, need for less fertilizer, etc., will pull producers that way. So, be prepared to lock in a good price level. While options appear expensive, they can be used to lock in a price, while leaving you open for upside movement. The cost of put options can be partially offset by selling out of the money calls. Times have changed, and producers need to explore new marketing opportunities.
USDA raised the projected Rice production. However, this should be footnoted, because long grain production slipped 1.8 million cwt lower, while the gains came in medium and short grain. Long grain ending stocks for ’07/’08 are projected to be just 15.8 million cwt, about half the beginning stocks.
World use is projected to exceed production for the seventh year in a row, reducing ending stocks to 70.99 million cwt. Further tightening of rice stocks helps compound the food grain situation and, again, suggests upside potential for rice as the marketing year progresses. Like wheat, rice is a food staple, and short supplies will eventually override high freight rates, etc.
November Futures have resistance between $11.40 and the contract high of $11.58, with initial support at $11.05, and stronger support at $10.75 to $10.50. The next long term chart objective is the January ’97 high of $12.45.
The Cotton rally may be topping. Exports to China tend to be a barometer for cotton price. Thus, recent slow export sales suggest the market is near an interim top. Concern about the potential shift of additional acres from cotton into grain or soybeans has helped firm the market, despite a slightly bearish supply demand report.
USDA raised the production estimate 460,000 bales. Old crop December Futures may find it difficult to move above 65 cents, while ’08 December Futures could move into the upper 70s at some point.
Producers may want to consider pricing ’07 cotton with December at 64 or higher. Support starts just above 60 cents.
Cattle Futures have been under pressure from weakness in wholesale beef prices. Poor processing margins have driven cash bids lower, and the lower cash price is also weighing on futures.
Supplies are expected to tighten this winter as a result of significantly smaller placements this summer, and that is limiting the downside.
The October live contract has found support near $94.50 for the time being. October feeder futures broke through uptrending support after the corn market held up well to last week’s crop report, and could retest resistance at the recent low of $114.20
Hog Futures continue to be under pressure. We have taken $13 and counting off October since the August 3 high was charted. Futures prices are still trading at a premium to cash prices, so additional weakness is not out of the question. Large hog supplies and rising pork production are causing concern.
China rejected shipments of U.S. pork recently, and that is a negative since the market was counting on Chinese demand to help work through burdensome supplies.
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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