Corn, soybean, and wheat prices are up with cotton prices mixed for the week. The June U.S. Dollar Index was trading mid day at 76.16, down .27 for the week. The Dow Jones Industrial Average traded before the close at 12,400; up 180 points for the week. Crude Oil was trading mid day at 107.51 a barrel, up 2.05 a barrel for the week. USDA released the Prospective Plantings and Grain Stocks report on March 31 and comments on these reports are posted at http://economics.ag.utk.edu/report.html . The reports had a bullish tone as corn and soybean stocks were tighter than expected and cotton acreage was less than expected. Wheat was bearish but prices were pulled up by corn and soybeans. Corn has been the only commodity able to build on its gain after the report as the other crops are down for the day. Focus will now shift to the weather, both planting and growing. Planting weather will be watched closely for corn and the repercussions a drop in acres would have not only on the corn market but soybeans. Dry weather in Texas should keep the cotton market on edge as well as dry conditions in the Plains states for wheat. USDA will release their monthly supply and demand report April 8 and should include updates to the stocks numbers. Comments on this report will be posted at http://economics.ag.utk.edu/outlook.html on April 8.
Corn:
Nearby: May futures closed today at $7.36 a bushel, up $0.47 since Friday. Support is at $7.18 with resistance at $7.45 a bushel. Technical indicators have changed to a strong buy bias. Weekly exports were above expectations at 87.9 million bushels (75.4 million bushels for 2010/11and a marketing year high and 12.5 million bushels for 2011/12). It is still widely assumed that exports to unknown destinations are going to China, but that has not been confirmed. Corn market turned upward and gained strength on the grain stocks report that indicated there were 167 million bushels less than anticipated which means usage has been greater than earlier thought. USDA most likely will make adjustments in the April 8 report which will further tighten ending stocks. The markets job will be to see that prices are high enough to ration demand insuring stocks in the pipeline. Some of that may be occurring as some feed needs are switched to wheat.
New Crop: September closed at $6.81 ½ a bushel, up $0.37 bushel since Friday. Support is at $6.53 with resistance at $6.99 a bushel. Technical indicators have a strong buy bias. Planting intentions for this crop year were estimated at 92.178 million acres, 340,000 acres higher than the average trade guess so that in itself was neutral to the market. However, there are already concerns whether that acreage will be able to get planted. Persistent wet conditions in the upper Midwest may slow or reduce planting. At the intended acres, nationwide yields need to be at least 159.17 bushels/acre to keep stocks constant and if an adjustment is made in ending stocks for 2010/11, a 161 bushel yield will be needed. I am currently at 45% priced and I would use a trailing stop of $6.38 for new sales. If that is too tight, use $6.00 a bushel. Put options would set a floor and buying a December $6.40 Put option would cost $0.77 and set a $5.63 floor on the December market while keeping an upside.
Cotton:
Nearby: May futures contract closed Friday at 195.55 cents/lb., down 8.94 cents/lb. for the week. Support is at 191.31 cents per pound, with resistance at 203.19 cents per pound. Technical indicators have changed to a buy bias. All cotton weekly export sales were within expectations at 279,000 bales (a reduction of 32,500 bales of upland cotton for 10/11; 309,400 bales of upland cotton for 11/12; reduction of 6,400 bales of Pima for 2010/11 and 8,500 bales of Pima for 2011/12. The Adjusted World Price for April 1 – April 7 is 208.40 cents/lb.; up .01 cents/lb. Export cancelation for this marketing year could be the effects of high prices. It will be interesting to see whether USDA reduces ending stocks based on 220,000 bales lower production from the latest Ginning report.
New Crop: December closed at 132.18 cents per pound, up 4.26 cents for the week. Support is at 127.66 cents per pound, with resistance at 136.26 cents per pound. Technical indicators have a strong buy bias. Loan equities have been quoted in the 66 – 69 cent range. Keep in contact with your cotton buyer for current quotes on loan equities. Planting intentions came in at 12.566 million acres, 630,000 acres less than the average trade guess. With tight beginning stocks and intended acres, the market will begin to focus on growing condition, particularly in Texas as they are in the grips of a drought. Dry weather in Texas could result in a higher level of abandonment and reduced yields. Balancing against potential production problems will be whether demand can keep the pace at these historically high prices.
I would currently be priced up to 40% with a trailing stop of 123.92 cents. If that stop is too tight use the 100 day moving average of 109.15. Continue evaluating the option market as a good tool to set a floor price and still leave an upside. Buying a December 132 Put Option would cost 18.03 cents and set a 113.97 futures floor. Buying an out of the money December 110 Put would cost 7 cents and set a 103 cent futures floor. December 2012 prices closed at 98.75 cents/lb.
Soybeans:
Nearby: The May contract closed at $13.93 ¾ a bushel, up $0.36 for the week. Support is at $13.68 with resistance at $14.29 a bushel. Technical indicators have a buy bias. Weekly exports were below expectations at 9.5 million bushels (5.3 million bushels for 2010/11 and 4.2 million bushels for 2011/12). Grain stocks gave a bullish indication to the March 31 reports as soybean stocks were estimated at 1.248 billion bushels, 50 million bushels less than the trade expected. Tight stocks look to be tighter than previously thought. With a large South American crop, can demand keep pace through the end of the year or will prices ration usage? That seems to be the question and the answer will have implications on how tight stocks really are.
New Crop: November soybeans closed at $13.89 ¼ a bushel, up $0.39 bushel this week. Prices have traded over $14.00 the last two days. Support is at $13.67 with resistance at $14.11 a bushel. Technical indicators have changed to a strong buy bias. Planting intentions released March 31 were 76.609 million acres, 260,000 acres less than expected. At intended acres, yields cannot drop off and will need to be at least 43.9 bushels/acre to maintain stock levels. However, any loss in corn acres from poor planting weather will go to soybeans and that could help alleviate tight stocks. I am currently priced 50% for 2011 and would wait until late spring-early summer before forward pricing more. If you are using a trailing stop to trigger pricing, use $13.36 as a pricing point. Currently, buying a November $14.00 Put would cost $1.25 and set a $12.75 futures floor.
Wheat:
Nearby: May futures contract closed at $7.59 ½ a bushel, up $0.26 a bushel since Friday. Support is at $7.30 with resistance at $7.88 a bushel. Technical indicators have changed to a hold bias. Weekly exports were below expectations at 15 million bushels (10 million bushels for 2010/11 and 5 million bushels for 2011/12). Quarterly grain stocks were bearish as 1.424 billion bushels were estimated on hand March 1, 26 million bushels more than expected.
New Crop: July wheat closed at $7.96 a bushel Friday, up $0.27 since last week. Support is at $7.67 with resistance at $8.25 a bushel. Technical indicators have changed to a hold bias. Acreage estimates for all wheat were 58.021 million acres, 730,000 acres more than expected. Some of that acreage may be abandoned due to dry conditions in the Plains. Foreign production may be as important to prices as the U.S. crop. I am currently at 50% priced and would wait until we get further into spring before pricing more. Prices will tend to trade with corn and soybeans. Buying a July $8.00 Put would cost $0.63 and set a $7.37 futures floor.
