Corn and wheat prices are up while cotton and soybean prices are down for the week. The September U.S. Dollar Index was trading before the close at 74.75, down 0.07 since last Friday. The Dow Jones Industrial Average has whipsawed all week in some extreme moves and while up 111 points today before the close looks to finish the week down 189 points at 11,255. Crude Oil was trading before the close at 85.38 a barrel, down 1.18 a barrel since last Friday. Dryness as measured by the U.S. Drought Monitor (http://drought.unl.edu/dm/monitor.html) continues to expand in the Midwest and was more or less a backdrop for this month’s USDA reports as projected yields were cut in corn and soybeans. USDA did release its monthly Supply & Demand report on Thursday, August 11 and as has been the case lately offered up some surprises for the market. Comments on this report have been posted at http://economics.ag.utk.edu/outlook.html along with a start on comparing cropping choices for 2012. Overall, this August report has been considered friendly to bullish for corn and soybeans; neutral to bearish for cotton and wheat. This month’s data does seem to set the stage for 2012 and possibly 2013 as there does not appear to be any cushion for corn and soybean stocks going into the 2012 production year. Next year is starting to shape up as another year where full production will be needed to meet demand. Still, the market is not always about fundamental supply and demand and outside influences can change the market in a hurry. Financial and economic worries and successes in the U.S. and abroad will also guide market direction and impact demand.
Corn:
Current Crop: September closed today at $7.01 ¾ a bushel, up $0.09 a bushel since last Friday. Support is at $6.92 with resistance at $7.13 a bushel. Technical indicators have a buy bias. Weekly exports were within expectations at 29.6 million bushels (17.4 million bushels for 2010/11 and 12.2 million bushels for 2011/12). The corn crop has 32% in the dough stage compared to 18% last week, 49% last year and the five year average of 38%. Corn dented is 7% compared to 4% last week, 14% last year and the five year average of 10%. Corn crop condition ratings as of August 7 were 60% good to excellent compared to 62% last week, and 71% last year. Poor to very poor ratings were 16% compared to 14% last week and 10% a year ago. USDA increased old crop ending stocks 60 million bushels from last month to 940 million bushels mainly on a drop in corn for ethanol and a reduction in exports. However, the real story is in new crop where harvested acres dropped 500,000 acres and estimated yields went from 158.7 to 153 bushels per acre. The trade was expecting 155 bushels per acre, although some did think that the eventual yield would be in that range they did not expect USDA to make that adjustment now. Overall, this report cut 496 million bushels in production and partially offset it with a 340 million bushel reduction in demand for 2011/12. Ending stocks were projected at 714 million bushels compared to the average trade guess of 741 million bushels and last month’s projection of 870 million bushels. If realized the projected stocks to use ratio of 5.4% would be the 2nd tightest in modern history. The season average price is estimated to range from $6.20 to $7.20 a bushel. Global stocks also are projected to tighten with a stock to use ratio of 13.2%. This would be the tightest in the last 25 years. All in all, a positive report as we head into harvest and could be laying the foundation for an acreage battle in 2012. I am currently 50% forward priced and 25% priced using a December Put option locking in a futures floor of $6.34. Put options would set a floor and buying a December $7.20 Put option today would cost $0.54 and set a $6.66 floor on the December market while keeping an upside. As earlier mentioned the downside in the corn market as well as all commodity markets would be the chance of a U.S. or global recession and the impact it would have on demand. As a side note, daily futures limits for corn will increase from 30 cents to 40 cents on August 22.
Deferred: March closed at $7.27 ½ a bushel, up $0.12 bushel since last Friday. Technical indicators have a strong buy bias. Support is at $7.17 with resistance at $7.39 a bushel. September 2012 corn closed at $6.84 ½ a bushel.
Cotton:
Current Crop: December closed at 100.52 cents per pound, down 1.06 cents since last week. Support is at 94.69 cents per pound, with resistance at 103.43 cents per pound. Technical indicators have a strong sell bias. All cotton weekly export sales were a reduction of 3,600 bales (reduction of 5,600 bales of upland cotton for 11/12; sales of 2,000 bales of upland cotton for 12/13). The Adjusted World Price for August 12 – 18 is 87.78 cents/lb.; down 3.07 cents/lb. from last week. Keep in contact with your cotton buyer for current quotes on loan equities and pricing alternatives. As of August 7, cotton setting bolls was rated at 79% compared to 62% last week, 82% last year and the five year average of 74%. Cotton bolls opening were at 9% compared to 8% last year and the five year average of 8%. Cotton crop condition ratings as of August 7 were 30% good to excellent compared to 30% last week and 65% last year. Poor to very poor ratings are 41% compared to 40% last week and 10% a year ago. Cotton continues to feel the effects of high prices on demand as USDA cut old crop exports 100,000 bales in yesterday’s report raising ending stocks by a like amount to 2.85 million bales. Surprises again came in 2011 production as instead of a reduction; USDA increased production 550,000 bales to 16.6 million bales. Analysts were looking for on the average a number of 15.3 million bales. Exports were raised 300,000 bales from last month resulting in ending stocks of 3.3 million bales. Global stocks were also increased 1.66 million bales to 52.66 million bales as usage reflects the weakness in fiber demand and increased substitution of polyester for cotton. Cotton prices have been up strong today which might be an indication that the market believes production to decrease when we get into harvest. I am currently at 45% priced and would hold at that level.
Deferred: March cotton closed at 98.40 cents per pound, down 0.72 cents for the week. Support is at 92.45 cents per pound, with resistance at 101.37 cents per pound. Technical indicators have a strong sell bias. December 2012 prices closed at 94.25 cents/lb.
Soybeans:
Nearby: The September contract closed at $13.27 ¾ a bushel, down ¼ cent since last Friday. Support is at $13.10 with resistance at $13.45 a bushel. Technical indicators have a sell bias. Weekly exports were above expectations at 21.6 million bushels (sales of 8.7 million bushels for 2010/11 and sales of 12.9 million bushels for 2011/12). Old crop ending stocks in USDA’s report were raised 30 million bushel to 230 million bushels on reductions of 5 million bushels in crush and 25 million bushels in exports. Global stocks were also raised 93 million bushels to 2.514 billion bushels.
Current Crop: November soybeans closed at $13.34 ¾ a bushel, down $0.01 a bushel since last week. Support is at $13.17 with resistance at $13.52 a bushel. Technical indicators have a sell bias. As of August 7, 87% of the soybean crop is blooming compared to 77% last week, 92% last year and the five year average of 89%. Soybeans setting pods were 51% compared to 34% last week, 69% last year and the five year average of 63%. Soybean crop condition ratings as of August 7 were 61% good to excellent compared to 60% last week, and 66% last year. Poor to very poor were rated at 13% compared to 12% last week and 11% a year ago. USDA cut projected yields 2 bushels per acre to 41.4 which with a 500,000 cut in harvested acres resulted in production of 3.069 billion bushels, a reduction of 169 million bushels from July and 103 million bushels less than the average trade guess. As in corn, projected usage was lowered 119 million bushels partially offsetting the drop in production. New crop ending stocks were estimated to be 155 million bushels compared to 175 million bushels last month and the average trade guess of 172 million bushels. The stocks to use ratio would be tight at 4.9%. In these comments, I am currently priced 50% for 2011 and have locked in a $13.21 futures floor with a November $14 put option on 25% of production. Currently, buying a November $13.40 Put option would cost $0.48 a bushel and set a $12.92 futures floor.
Wheat:
Nearby: September futures contract closed at $7.02 ½ a bushel, up $0.24 a bushel since Friday. Support is at $6.83 with resistance at $7.28 a bushel. Technical indicators have changed to a sell bias. Weekly exports were below expectations at 13.8 million bushels for 2011/12. Nationwide, 85% of the winter wheat crop has been harvested compared to 81% last week, 87% last year and the five year average of 91%. Spring wheat as of August 7 is 6% harvested as compared to 17% last year and the five year average of 24%. Spring wheat crop condition ratings as of August 7 were 66% good to excellent compared to 70% last week, and 82% last year. USDA lowered production based on a 1.3 million acre decrease in harvested acres and a 0.60 bushel increase in yield. Ending stocks were up one million bushels from last month at 671 million bushels. Usage was lowered 30 million bushels with exports projected down 50 million bushels with increased foreign competition; feed and residual use is raised 20 million bushels reflecting a competitive pricing for feed wheat compared to corn and lower corn supplies. The season average price is estimated to range from $7.00 to $8.20 a bushel, up 40 cents on the bottom side and down 20 cents on the top side. World ending stocks are projected at 6.940 billion bushels, up 246 million bushels from the July estimate as world production increased more than consumption. Fundamentals for wheat are neutral to bearish as there are adequate U.S. and global stocks, but wheat most likely will follow the direction of the corn market. If drought conditions do not improve, we could see winter wheat acres decline and that offers some support to the market.
Deferred: December wheat closed at $7.32 ¼ a bushel, up $0.09 since last week. Support is at $7.16 with resistance at $7.54 a bushel. Technical indicators have a sell bias. July 2012 wheat closed at $7.83 ¼ a bushel.
