Thursday’s planting intentions report from the USDA confirmed buy signals on the daily charts for corn, soybeans and soybean meal. That coincides with buy signals on the weekly charts, suggesting significant weather rallies going into the summer could be expected.
Of particular concern for livestock feeders (that purchase inputs) is the potential rally in corn. The targets from the daily chart are $4.10/bu US initially then $4.19. The weekly chart suggests multiyear resistance at $4.44 should be tested. Following significant drawdowns in world supplies (albeit from record levels), the market will be extremely sensitive to weather developments this year with the reduction in seeded area. Keep in mind, it was just August of 2012 when corn futures topped out at $8.43/bu US. For interest sake, the Canadian dollar was par at that time, not $.7760. (Obviously most producers feed grains other than corn but the prices would follow corns lead.)
I would recommend livestock feeders take a serious look at protecting themselves from price increases on future needs. Whether forward contracts, long futures contracts or call options, some sort of protection appears warranted. I would prefer call options on anything not covered by forward contracts due to the volatile price moves in weather markets.
Soybean meal is in a similar situation and pork producers may want to look into price protection here as well. The meal is extremely vulnerable to a price increase given the drought in Argentina this past winter and the fact they are the top supplier of meal to the world (49% of the wold exports last year). For a target, the 2012 high of $527/ton US cannot be ruled out on weather rallies this summer.
Of particular concern for livestock feeders (that purchase inputs) is the potential rally in corn. The targets from the daily chart are $4.10/bu US initially then $4.19. The weekly chart suggests multiyear resistance at $4.44 should be tested. Following significant drawdowns in world supplies (albeit from record levels), the market will be extremely sensitive to weather developments this year with the reduction in seeded area. Keep in mind, it was just August of 2012 when corn futures topped out at $8.43/bu US. For interest sake, the Canadian dollar was par at that time, not $.7760. (Obviously most producers feed grains other than corn but the prices would follow corns lead.)
I would recommend livestock feeders take a serious look at protecting themselves from price increases on future needs. Whether forward contracts, long futures contracts or call options, some sort of protection appears warranted. I would prefer call options on anything not covered by forward contracts due to the volatile price moves in weather markets.
Soybean meal is in a similar situation and pork producers may want to look into price protection here as well. The meal is extremely vulnerable to a price increase given the drought in Argentina this past winter and the fact they are the top supplier of meal to the world (49% of the wold exports last year). For a target, the 2012 high of $527/ton US cannot be ruled out on weather rallies this summer.