Weekly Roberts Agricultural Commodity Report

US - Last Friday higher-than-expected placements triggered selling. USDA increased placements for December over last year at this time by 16 per cent, writes Mike Roberts.
calendar icon 27 January 2011
clock icon 5 minute read

Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed down on Monday. The FEB’11LC contract closed down $1.175/cwt at $106.775/cwt. The APR’11LC contract closed at $111.675/cwt, off $1.000/cwt. AUG’11LC futures closed at $112.375; down $0.600/cwt. Last Friday higher-than-expected placements triggered selling. USDA increased placements for December over last year at this time by 16 per cent. Prices for feeders weighing over 800 lbs increased by 29 per cent over last year. This is bearish for the near-term since these will come to market sooner rather than later. Exports were strong amid talk that South Korea may buy more in light of foot-and-mouth disease outbreaks in cattle and hogs there. USDA last Friday put beef exports at 153 per cent over this time last year. USDA put the 5-area average cash cattle price at $105.85/cwt with reports over $106/cwt in some places. USDA put the choice beef ¢ cutout at $173.62/cwt; up $0.81/cwt. Even though seasonality is pressuring prices underlying fundamentals are supported by strong domestic and export demand. This, coupled with expectations for tightening supplies, will continue to drive a bullish market. According to HedgersEdge.com, the average packer margin was a positive $27.70/head based on the average buy of $107.8821/cwt vs. the average breakeven of $109.29/cwt.

FEEDER CATTLE at the CME closed mixed on Monday. The JAN’11FC and MAR’11FC contracts finished even with Friday’s close at $126.350/cwt and $125.550/cwt respectively. APR’11FC futures finished at $126.300/cwt; off $0.050/cwt. The AUG’11FC contract settled at $127.300/cwt, down $0.200/cwt. Feeders were pressured by lower live cattle prices while supported by lower corn prices. Talk there will be fewer feeders later this year was supportive. According to three floor sources there are expectations in the pit that January placements will be off 4 per cent-5 per cent from a year ago because of smaller supplies. Receipts in Oklahoma City were estimated at 9,500 head vs. 10,505 last week and 11,563 a year ago. Demand is considered moderate with quality not as good as show lists were two weeks ago. This may be due to harsher weather conditions. The Nation Feeder & Stocker Cattle summary for the week ending 1/21/2011 show sales of 506,600 head, sales of 354,500 head a week ago, and 556,300 head a year ago. Demand for calves was considered good with yearlings selling $2-$6/cwt higher. Buyer demand, trading activity, and price levels were unprecedented amid all-time record highs posted on most weights and classes across the country. Reports from all over the place show that this is uncharted territory. These high prices have triggered producer selling while discouraging herd expansion.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) were up on Monday. JAN’11DA futures were up $0.03/cwt at $13.53/cwt. The MAR’11DA contract finished at $17.00/cwt; up $0.75/cwt. JULY’11DA futures finished at $16.79/cwt; up $0.35/cwt. Good demand continues. With March at $17.00/cwt it is the highest it’s been since October 2008. April and May settled higher while contracts for 2011 averaged $16.52/cwt at the close. Blocks rose $0.0625 while barrels were up $0.0525. Commercial butter inventory for December was the lowest since ’05 but up 12.0 mi lbs from November. Milk prices are beginning to show the improvement forecasted week-before-last in this report.

CORN futures on the Chicago Board of Trade (CBOT) finished lower on Monday with deferreds from December 2011 on finishing even with last Friday’s close. The MAR’11 contract closed at $6.552; off 2.0 ¢ /bu. The DEC’11 contract closed at $5.872; even with last Friday’s close. Profit taking, wheat/corn spreading, waning ethanol profits, and lower crude oil markets pressured prices. Exports were neutral with USDA putting corn-inspected-for-export at 25.87 mi bu vs. expectations of 20-26 mi bu. News reports from Japan indicate Chubu Shiryo, a livestock feeder, will cut corn in animal feed due to high costs. Brazil reported satisfactory corn crop weather while Argentina forecasts show much needed rain mid-week. Funds sold near 5,000 lots. Ending stocks are near 15-year lows due to strong demand and lower-than-expected yields. Traders think that farmers will consider planting more corn next spring so they are taking some profits now. Corn is expected to compete for soybean and wheat acres this spring. It might be a good idea to price another 10 per cent of the 2011 crop taking you to 80 per cent covered.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished down on Monday. The MAR’11 contract closed at $14.044/bu; off 7.75 ¢ /bu. NOV’11 soybean futures closed off 11.5 ¢ /bu at $13.366/bu. Profit taking, prospects for better weather in Argentina weighed on prices as strong demand for soybeans from China supported prices. Funds sold just over 6000 lots on a market saturated with bull positions. Brazil soybean growing areas were getting plenty of rain filling out the crop. Exports were supportive with USDA putting soybeans-inspected-for-export at 42.08 mi bu vs. expectations for 35-40 mi bu. It is a great opportunity to speculate with the remaining 40 per cent of the 2011 crop.

WHEAT futures in Chicago (CBOT) closed up on Monday. The MAR’11 wheat contract closed at $8.352/bu; up 10.75 ¢ /bu. JULY’11 futures finished up 12.0 ¢ /bu at $8.786/bu. Strong export demand from North African and Arab countries, awful wheat-crop-conditions in Australia, and drought concerns in China are supportive. Funds bought 2,500 lots. USDA placed wheat-inspected-for-export at 23.07 mi bu vs. expectations for 22-28 mi bu. With weather problems in the other countries the US is seen as one of the last remaining placed to find high-quality wheat. Drought put the hurt on Russia’s crop last summer while heavy rains are hurting the quality of Australian and Canadian wheat. If you haven’t priced up to 75 per cent of the 2011 crop yet now is the time.

LEAN HOGS on the CME finished mixed on Monday. The FEB’11LH contract closed up $0.325/cwt at $80.650/cwt. The APR’11LH contract closed at $86.250/cwt; down $0.325/cwt. AUG’11LH futures closed at $96.500/cwt; up $0.125/cwt. Poultry supply is increasing. This meat protein competes for pork sales when supply is ample and retail prices are cheaper. USDA on Friday put the pork cutout at $85.64/cwt; down $0.31/cwt. According to HedgersEdge.com, the average packer margin was placed at a positive $15.95/hd based on the average buy of $55.70/cwt vs. the average breakeven of $61.50/cwt. The latest CME lean hog index was placed at 76.14 ¢ /lb; up 0.32 ¢ /lb.

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