Market Briefs | Feb. 1, 2023

Despite a bearish annual production report, cotton futures continue to trend higher. The nearby March contract continues to be locked in a trading range between support at 80¢ and resistance at 90¢, but new-crop December set a new five-month high last week. In the report, harvested acres were cut to 7.44 million acres, down from 7.88 million in the previous report. The average yield, however, was raised to 947 lbs/ acre, up from 868 lbs/acre in the previous report. That yield increase more than offset the cut in acreage, so the net result of the report was 438,000 bale increase in the production estimate. The crop is now pegged at 14.68 million bales. In Arkansas, farmers harvested an average of 1,196 lbs/acre on 630,000 acres for a total production of 1.570 million bales. In the WASDE, exports were cut 250,000 bales and are now pegged at 12 million bales. U.S. ending stocks were up 700,000 bales to 4.2 million bales, or 30% of use. The upland season-average on-farm price was down 2¢ from last month to 83¢ per pound. Our first look at the 2023 crop will come later this month in the form of the National Cotton Council’s annual survey of growers followed by USDA’s first estimates released at the Annual Outlook Forum. The continued drought in west Texas could again impact planted acres.

Rice futures are trending higher but need to see better demand. Last week’s report showed net cancellations. In the annual production report, the biggest changes came from long grain production, which was pegged at 128.15 million cwt. That’s down 3.5 million cwt from the previous report. In Arkansas, farmers produced an average of 7,410 lbs/acre on 1.084 million acres. The cut in production more than offset a two million cwt cut in exports in the WASDE report, resulting in an all-rice ending stocks estimate of 32.1 million cwt. That’s down 6 million cwt from last month. The projected long grain on-farm price was pegged at $16.70, and medium-grain was pegged at $17.60. March futures have failed to challenge the high of $18.53 and are building resistance below $18.40.

There hasn’t been much news for the corn market to react to other than the annual production report. USDA cut 200 million bushels from the corn crop estimate. U.S. farmers harvested an average of 173.3 bushels per acre from 79.2 million acres for total production of 13.73 billion bushels. In Arkansas, farmers harvested 173 bu/acre from 695,000 acres. The average on-farm price was pegged at $6.70/bu. In reaction to the report, December charted a bullish key reversal and established support at $5.83¾. The market will soon begin to focus on the prospects for the 2023 crop.

Old-crop March soybeans are in position to challenge the recent high of $15.48½ after gapping lower last week before staging a rally. New-crop November fell to four-month lows last week before turning around. In the annual production report, the soybean production estimate was cut more than expected. USDA says that U.S. farmers harvested an average of 49.5 bu/acre from 86.3 million acres, for total production of 4.28 billion bushels. In Arkansas, farmers harvested an average of 52 bu/acre from 3.15 million acres. In the WASDE, projected exports were cut by 55 million bushels to 1.99 billion bushels, down 7% from the previous market year. Ending stocks were down 10 million bushels from the previous report to 210 million bushels. The average on-farm price is estimated at $14.20, up 20¢ from the previous report. 

The biannual USDA Cattle Inventory Report was released this week. The report pegged the total beef cattle inventory at 28.9 million head on Jan. 1, down 3.6% from the previous year. That is a significant liquidation of cattle — it’s the smallest herd size for that date in 61 years according to USDA data. The total number of cattle and calves fell 3% from a year ago, to 89.3 million head. That’s the lowest total since 2015. June futures gapped higher and set a new contract high in reaction to the report. That high of $159.75 could become resistance. Feeders have had some carryover strength from live futures, but strength in corn futures has limited the upside potential of the market. 

Lean hog futures continue to be under pressure from weakness in cash hog and wholesale pork prices. Last week’s Cold Storage report showed Dec. 31 frozen pork stocks to be at a 3-year high of 458.1 million pounds. That is up 15.6% from the previous year, despite a drop in production. Strong weekly export sales did result in a bullish reversal in summer contracts last week, but the upside potential of the market remains unclear.