9 February 2011

8 minute read

North America

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) were up on Monday with the exception of the February that will expire soon. The MAR’11DA contract finished at $16.56/cwt; down $0.03/cwt and $1.63/cwt lower than last report. JULY’11DA futures finished at $17.05cwt; up $0.11/cwt and $0.35cwt higher than last week at this time. Firm international markets were supportive. The recent cold weather last week slowed supply movement and producers, handlers, and processing plants are trying to get back to business. However, the middle of the US still is in the deep freeze with a lot of snow cover. Better weather has returned to California milk country. International prices were higher across the board. Butter from Oceania is the highest it’s ever been at $2.04-$2.36/lb. European butter was priced at $2.38-$2.49/lb, the most since November of 2007. European whey is at $0.54-0.46. Demand is very strong with buyers seeking supplies wherever they can be found. Additionally, international demand for dairy products is soaring. Spot cheese prices were bid higher on Monday amid the absence of trades. Fresh highs in the March through August contracts were noted.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished lower on Monday with the exception of the December ’11 contract. The FEB’11LC contract closed down $0.525/cwt at $107.725/cwt and $1.225/cwt lower than last report. The APR’11LC contract closed at $111.750/cwt, down $1.275/cwt and $2.330/cwt lower than last Monday. AUG’11LC futures closed at $113.775/cwt; off $0.525/cwt and $1.075/cwt under this time last week. February’s premium to cash, higher feed prices, and profit taking continued to pressure prices. Cash cattle traded $2 higher last Friday. USDA put the 5-area average at $105.89/cwt; $1.54/cwt higher than this time last week. Short covering and spreading was noted. Early Monday USDA put the choice beef cutout at $170.06/cwt; down $1.09/cwt and $3.25/cwt lower than a week ago. Floor sources said pit action was very slow because China was on holiday due to New Year’s celebrations in that country. The Canadian cattle herd reduction is showing some slowing so supplies could be coming south in the future. However, it will take a few years before the herd reduction trend turns around and a noticeable increase in the herd size can be expected. Free trade is in the future. The Canadian Cattlemen’s Association (CCA) noted that Canada and the US have initiated efforts to streamline cross-border business, including the creation of a US/Canadian Regulatory Cooperation Council. This is viewed as very good news by Canadian cattle producers. Australian beef exports are rising and expected to increase as much as 3.3 per cent in 2011. Boneless meat exports will expand to 953,000 metric tons, with most of the growth likely to come from outside the three largest markets, according to an annual forecast issued Monday by marketer Meat & Livestock Australia Ltd. Russia, Indonesia, and the Middle East are expected to maintain trading trends of increased proportions of total exports going to markets other than Japan, the US and South Korea. According to HedgersEdge.com, the average packer margin was lowered $8.85/hd to a positive $36.90/head based on the average buy of $105.59/cwt vs. the average breakeven of $108.40/cwt.

FEEDER CATTLE at the CME closed down on Monday. The MAR’11FC contracts finished down $o.425/cwt at $124.575/cwt and $3.425/cwt lower than last report. APR’11FC futures finished at $126.500/cwt; off $o.225/cwt and $2.575/cwt lower than this time last week. The AUG’11FC contract settled at $128.400/cwt, up $0.050/cwt and $1.575/cwt under last report. Feeders were lower on weakness in the summer and fall months of live cattle futures indicating feedlots will not be paid for higher-priced young cattle to grow to slaughter weight. The Oklahoma City market was closed on Monday due to snow covered roads that kept deliveries out of town. The CME 7-day average price for 65-849 lb feeders for 2/7 was put at $125.02/cwt; down $0.36/cwt and $0.53/cwt lower than last report. The CME feeder cattle index was placed at 125.38 ¢/lb; up 0.22 ¢/lb from Friday but 0.27 ¢/lb lower than a week ago.

CORN futures on the Chicago Board of Trade (CBOT) were off on Monday with the exception of the December ‘11 and March ‘12 contracts. The MAR’11 contract closed at $6.746; off 3.75 ¢/bu but 15.25 ¢/bu higher than last week at this time. The DEC’11 contract closed at $6.020; up 2.25 ¢/bu and 10.75 ¢/bu over last report. Short-covering, and profit taking on fund long-liquidation, improving crop weather in Argentina, and weak cash bids on the Mississippi river weighed on prices. Steady-to-firm exports were supportive. Floor traders said they took some money off the table ahead of the USDA World Agriculture Supply Demand Estimate (WASDE) report due out Wednesday even though they think the corn supplies will come out perilously low. Sources working in the big fund shops said they viewed the market as top-heavy noting nearly 5,000 lots sold. While cash corn bids in the interior were firm they were weak on the river amid slow moving barge traffic and slow farmer sales. Sales were mostly on new crop corn for delivery in the next several months. Snow and cold weather kept many farmers home. USDA placed corn-inspected-for-export at 26.6 mi bu vs. expectations for 25-30 mi bu. Year-to-date exports are well above expectations for 2011 but need to average 41.3 mi bu/week to reach target expectations. Corn prices continue to compete for acres at these prices. All spring crops have rallied to new highs on supply concerns. I don’t talk about cotton in this report but it must be noted that cotton last week hit new post-Reconstruction Era highs. That’s … since the end of the Civil War! Prices are competitively seeking acres all over the place. Fundamentally the ongoing talk of tight US ending stocks is underpinning the corn market. In the ethanol markets futures slipped on strong corn prices and worries that congress will do away with the blender’s credit in the 2012 farm bill … or as my Congressman puts it, “if not before.”

SOYBEAN futures on the Chicago Board of Trade (CBOT) fell on Monday with the exception of November 2012. The MAR’11 contract closed at $14.244/bu; down 9.0 ¢/bu but 11.5 ¢/bu over last report. NOV’11 soybean futures closed off 3.0 ¢/bu at $13.660/bu but 25.0 ¢/bu higher than last Monday at this time. The same market action that weighed on corn was evident in soybeans: fund liquidation on profit taking, short covering, and good crop weather in Argentina. Funds sold an estimated 5,000 soybean lots as well. Exports were steady-to-firm with USDA putting soybeans-inspected-for-export at 41.3 mi bu vs. expectations for 39-43 mi bu. Farmers are doing telephone marketing in this cold weather. Another factor weighing on prices was USDA analyst’s expectations for increased Brazilian output projections. Timely rains have raised the level of uncertainty surrounding production. China is not expected to return to the world market as a buyer until after the Lunar New Year Holiday ends February 9. Fundamentally the market maintains an overall bullish momentum with outlooks by the USDA to further tighten ending stocks on strong demand underpinning the market and limiting declines. Price volatility may be expected as full season soybeans jockey for acres against other spring crops.

WHEAT futures in Chicago (CBOT) closed up on Monday. The MAR’11 wheat contract closed at $8.586/bu; up 5.0 ¢/bu and 18.0 ¢/bu over last report. JULY’11 futures finished up 8.5 ¢/bu at $9.166/bu and 27.25 ¢/bu higher than this time last week. Lively exports of US wheat and more cold weather fueled concerns over winterkill while combining to lift wheat futures. Funds bought over 2,000 lots. USDA reported wheat-inspected-for-export at 29.6 mi bu vs. expectations for 25-27 mi bu. Egypt bought 170,000 tonnes (6.25 mi bu) of US, Australian, and Argentine wheat for March 21-31 shipment. However, Egypt is experiencing some port delays on reduced banking services amid the unrest there. Grain shortages continue. Iraq issued a tender for 100,000 tonnes (3.67 mi bu) as flour prices surge on wheat import shortages in that country. Algeria let it be known that it was seeking 50,000 tonnes (1.84 mi bu) of optional-origin milling wheat for May and June shipment. Turkey tendered for 300,000 tonnes (11.02 mi bu) of milling wheat. Iran is expected to resume wheat imports due to drought in that country. Cash wheat in the US Plains was steady-to-firm amid slow farmer selling due to the cold weather. Fundamentally world demand is strong for milling wheat on crop concerns in other countries and strong demand in the Middle East and Africa. One break, however is that feed wheat may be plentiful on quality issues from Australia.

LEAN HOGS on the CME finished up on Monday as the bright spot of the commodity markets. The FEB’11LH contract closed up $0.450/cwt at $84.950/cwt but $2.30/cwt lower than last week at this time. The APR’11LH contract closed at $91.825/cwt; up $0.175/cwt but $3.094/cwt under last report. AUG’11LH futures closed at $98.500/cwt; up $0.675/cwt and $1.175/cwt higher than last week at this time. $100/cwt hogs were noted in June and July futures. Firm cash markets and expectations for increased pork demand in the coming months were supportive. Hogs traded mixed on the open but took off not looking back on talk that processing plants need hogs to make up for last week’s storm-reduced production. Additionally, pork demand is still strong in domestic and export markets as South Korea had to cull a quarter of its herd to quell an outbreak of foot-and-mouth disease. Cash hogs traded $1.50- $2.00/cwt higher across the board because processing plants are still making profits on higher exports and can afford to bid them higher. Some plants are boosting output to make up for last week’s short run. USDA on Friday put the pork cutout at $89.17/cwt; down $0.31/cwt but $0.60/cwt higher than last report. According to HedgersEdge.com, the average packer margin was lowered $2.80/hd to a positive $8.95/hd based on the average buy of $60.83/cwt vs. the average breakeven of $64.11/cwt. The latest CME lean hog index was placed at 81.75 ¢/lb; up 0.25 ¢/lb and 3.43 ¢/lb over last report.