By: Bob Utterback
, Farm Journal
Bob Utterback has more than 26 years of experience and offers producers a disciplined approach to marketing.
Final thoughts for the week
Nov 14, 2008
Currently I don’t see any bullish fundamentals strong enough to push us out of the upside but a lot of concern about crude and equities pushing to lower levels. I continue to suggest the supply and demand fundamental for beans are about as tight as they are going to get and have the potential to get decisively worse as the year drags on. If we see lackluster demand and significant increase in global production acres, beans could become as weak as cotton!
Wheat has developed an impressive double bottom on the charts. The talk of Argentina’s crop being down has helped a lot. I have to say I really like the technical nature of the wheat chart but I can’t get excited about the fundamental make up of the market. I have suggested on my daily copy any client who has sales on the books below the July $6.05 basis should consider moving to the sidelines in hope of a seasonal bounce. If you have significantly higher trades I’m inclined to simply sit on the trades and maybe sell a deep out of money put to help insulate some of the upside risk.
The last couple of months the hog complex, like a lot of the commodities, is trying to bounce off its lows. While I want to give a little encouragement the lows are in, for hogs I must be quick to point out that hog exports are the key to higher prices. If the global recession gets deeper, the issue is will exports be able to hold up. I’m still of the opinion that there is about a 50/50 risk we still need a strong round of hog liquidation before the lows in.
The cattle charts are a mirror of the hog charts and essentially the same forces affecting cattle as hogs and poultry. One can’t get really bullish to cattle until we have some confidence that equities and oil have bottomed. Next week, will it be a week where the market will try to confirm the low is in for cattle or do we still have a serious risk of liquidation ahead?
Of all the ag commodities I watch, the cotton market has been the one most beat up. We may have put a low in cotton but just like all the other commodities we are holding our breath and waiting for solid outside confirmation. One point I will make is that new crop cotton according to some Southern producers is approaching the “variable cost” of production if you add on any type of basis. Yes that’s right, prices are at levels where they only pay for the seed, fuel and fertilizer. The land cost, labor cost and profit is a dim memory. The issue will quickly start to develop questions like whether they will start changing their crop mix to other commodities, and simply let their cotton picker sit in the shed this year. Common sense suggests cotton is approaching a long term bottom, the problem is with all the outside financial market uncertainty we may have to wait until we confirm significantly lower planted acres before the cotton market starts to rally.
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