Corn, cotton, soybeans and wheat prices are all down for the week. The June U.S. Dollar Index is trading midday at 80.39, up 0.80 for the week. The Dow Jones Industrial Average before the close was down 180 points for the week at 12,858. Crude Oil traded before the close at 95.84 a barrel, down 2.65 a barrel for the week. Several non-agricultural related factors have come together here at the end of the week to put additional pressure on prices. These include the news that bank J.P. Morgan Chase has taken $2 billion in trading losses in a trading group that manages risks the banks takes with its own money and disappointing industrial production data from China and India. Some commodity funds which have incurred losses appear to be shutting down and liquidating their positions and putting downward pressure on prices. USDA did release their monthly supply and demand reports May 10 and at least initially were bearish corn and cotton, bullish soybeans, and friendly to wheat. Comments on this report have been posted at http://economics.ag.utk.edu/outlook.html.
Nearby: July closed at $5.81 a bushel, down 39 ¼ cents a bushel for the week. Technical indicators have changed to a strong sell bias. Support is at $5.61 a bushel with resistance at $6.02 a bushel. Weekly exports were below expectations at 18.6 million bushels (8.8 million bushels for the 2011/12 marketing year and 9.8 million bushels for the 2012/13 marketing year). In somewhat of a surprise to the market, USDA raised ending stocks 50 million bushels to 851 million bushels rather than cutting stocks. Feed and residual use was reduced the 50 million bushels as it is assumed that feed wheat will take the place of corn in some rations. It is also assumed that an early harvested crop will alleviate any tightness in old crop stocks. It is also important to note that old crop basis has been usually strong, trying to entice producers to deliver corn and could be an indication that stocks are tighter than USDA estimates. We will have to watch as this plays out over the summer.
Current Crop: September closed at $5.11 ¼ a bushel, down 24 cents a bushel since last Friday. Technical indicators have a strong sell bias. Support is at $4.97 a bushel with resistance at $5.24 a bushel. Corn planted as of May 6 was 71% nationwide as compared to 53% last week, 32% last year and the five year average of 47%. Corn emergence is 32% compared to 15% last week, 6% last year and the five year average of 13%. USDA’s first look at the new crop came in for the most part as expected with the acreage from the March 30 Prospective Planting report and yields 2 bushels per acre higher at 166 bushels per acre based on above average planting progress. Ending stocks were projected at 1.881 billion bushels compared to the average pre-report guess of 1.704 billion bushels. The season average price is forecast to range from $4.20 to $5.00 a bushel. Considering the surprise in old crop stocks, the difference on the average in the new crop ending stocks was 84 million bushels higher than thought. With a soybean corn ratio at 2.60 to 1 today and nitrogen prices trending higher, it is conceivable that some corn acres may switch to soybeans. Also, a 166 bushel per acre nationwide yield will require ideal growing conditions and may be then difficult to achieve considering some lower yielding acreage planted to corn outside the Corn Belt. On the flip side, USDA increased feed and residual use 900 million bushels from the 2011/12 marketing year and if supplies are reduced for whatever reason, that usage could also be cut. Weather and growing conditions from now until harvest will have the greatest influence on prices. During the week, I added 10% to forward pricing and am now at 50% priced overall. From a price risk management standpoint, a December $5.10 Put would cost 42 cents and set a $4.68 futures floor.
Nearby: July closed at 78.97 cents per pound, down 9.02 cents since last week. Support is at 74.70 cents per pound with resistance at 83.90 cents per pound. Technical indicators have a strong sell bias. The Adjusted World Price for May 11– May 17 is 73.74 cents per pound, down 3.59 cents. All cotton weekly export sales were 202,500 bales (99,400 bales of upland cotton for 2011/12; sales of 94,200 bales of upland cotton for 2012/13; sales of 6,500 bales of Pima cotton for 2011/12 and sales of 2,400 bales of Pima cotton for 2012/13. USDA made some slight adjustments with old crop acreage and yields but the end result was an unchanged ending stock number of 3.4 million bales. Global ending stocks were raised 810,000 bales to 66.88 million bales, a record. I am currently at 80% priced for 2011 production and would be willing to hold the remainder through the end of May and sell on a strong rally. Cotton prices look to be oversold and commodity fund liquidation could be putting pressure on prices.
Current Crop: December cotton closed at 76.34 cents per pound, down 9.46 cents for the week. Support is at 71.95 cents per pound with resistance at 81.37 cents per pound. Technical indicators have a strong sell bias. Keep in contact with your cotton buyer for current quotes on loan equities and pricing alternatives. Cotton planting is pegged at 36% compared to 26% last week, 24% last year and the five year average of 28%. USDA used the March 30 intentions acreage of 13.16 million acres, an abandonment of 20%, and yields of 777 pounds per acre nationwide in this latest report. The abandonment and yields are influenced by the drought in Texas. Domestic usage is increased 100,000 bales and exports increased 600,000 bales from the old crop year. Ending stocks were raised 1.5 million bales to 4.90 million bales. The more bearish numbers are on the global picture as ending stocks are forecast to increase 6.87 million bales to 73.75 million bales. China is expected to hold 38% of the world’s stock and their policies on cotton will most likely sway the market as well as the goings on in India. Actual planted cotton acreage in the U.S and abroad will most likely be lower than the current projection. Stronger demand will be needed to pull prices up. I am still holding out for prices to rally before pricing the crop.
Nearby: The July contract closed at $14.06 a bushel, down 72 ¼ cents a bushel since last Friday. Technical indicators have changed to a sell bias. Support is at $13.64 a bushel with resistance at $14.82 a bushel. Weekly exports were above expectations at 67.1 million bushels (17.1 million bushels for the 2011/12 marketing year and sales of 50 million bushels for 2012/13). USDA cut ending stocks 40 million bushels in the May 10 report to 210 million bushels, 11 million bushels lower than the average pre report guess. Crush was raised 15 million bushels and exports increased 25 million bushels. The stocks to use ratio was lowered to 6.2% from 8.2 % last month. World ending stocks for 2011/12 are projected to again decrease to 1.956 billion bushels, 84 million bushels less than the April estimate.
Current Crop: November soybeans closed today at $13.21 ¼ a bushel, down 45 ½ cents since last week. Technical indicators have changed to a sell bias. Support is at $12.87 a bushel with resistance at $13.83 a bushel. Soybean planting has progressed to 24% compared to 12% last week, 6% last year and the five year average of 11%. Soybean emergence is 7% compared to 2% last year and the five year average of 3%. In the new crop year, increased demand more than offsets increased production as ending stocks are projected at 145 million bushels, a historically low stocks-to-use ratio of 4.4%.Based on the March 30 USDA planting intentions report, soybean planted acreage is projected at 73.9 million acres. Acreage will most likely be increased at some point in the growing season as it is believed that higher soybean prices have encouraged either additional double crop acres or a switch from other crops. Currently, supplies are projected at 3.430 billion bushels with usage at 3.285 billion bushels. The season average price is estimated to range from $12.00 to $14.00 a bushel. Global new crop stocks are projected to increase 177 million bushels to 2.134 billion bushels as South American production is expected to rebound from their drought reduced production of 2011/12 and offset increased consumption. I am currently 50% priced overall. From a price risk management standpoint, a $13.20 Put option would cost 72 cents and set a $12.48 futures floor.
Current crop: July futures contract closed at $5.97 a bushel, down 12 ½ cents a bushel since Friday. Technical indicators have a strong sell bias. Support is at $5.86 a bushel with resistance at $6.09 a bushel. Weekly exports were within expectations at 20.2 million bushels (8.1 million bushels for 2011/12 and 12.1 million bushels for 2012/13). Overall, 63% of the winter wheat crop has headed compared to 54% last week, 39% last year and the five year average of 34%. Winter wheat conditions as of May 6 were 63% good to excellent compared to 64% last week, and 33% last year. Poor to very poor conditions are estimated at 12% compared to 10% last week and 42% last year. Projections for 2011/12 marketing year which ends on May 31 for wheat are for ending stocks of 768 million bushels, 25 million bushels lower than last month and 13 million bushels lower than the average trade guess. Exports accounted for the change as they were raised 25 million bushels. The stocks to use ratio is estimated at 34.7%. World ending stocks are projected at 7.239 billion bushels, down 34 million bushels from April. USDA new crop projections estimate ending stocks at 735 million bushels compared to the average pre-report guess of 805 million bushels. Production and total supplies are both projected higher than the previous year with demand forecast to increase 8.3% from the 2011/12 marketing year. Stocks to use are expected to drop to 30.7% with a season average price of $5.50 to $6.70 a bushel. Global stocks are expected to decrease 327 million bushels to 6.912 billion bushels. I am priced 20% on the current crop and would target any rallies to the $6.50 range as a point to price more. . With harvest right around the corner and wheat looking like it has reached a bottom, if price targets aren’t met I would consider selling the remainder at harvest or possibly storing some depending on the deferred contracts basis and cash flow needs. A $6.00 Put option would cost 27 cents and set a $5.73 futures floor. This option expires on June 22.
Deferred: December wheat closed at $6.35 ½ a bushel, down 12 ½ cents since last week. Technical indicators have a strong sell bias. Support is at $6.24 a bushel with resistance at $6.48 a bushel. Spring wheat planted is at 84% compared to 74% last week, 19% last year and the five year average of 49%. Spring wheat emergence is 47% compared to 30% last week, 5% last year and the five year average of 17%.