Weekly Roberts Report

US - Mike Roberts, from North Carolina State University looks at the weeks commodity markets.
calendar icon 17 June 2011
clock icon 7 minute read

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

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up with the exception of the November 2011 and the December 2011 contracts. The JUNE’11DA contract finished at $19.15/cwt; up $0.08/cwt and $0.14/cwt over last report. JULY’11DA futures finished at $19.77/cwt; up $0.16/cwt but $0.40/cwt lower than this time last week. US cheese prices are above Oceania benchmark prices for the first time since 2009. From January 2010 US prices have run $0.32 below Oceania. Oceania cheese output is lower on the seasonal end of the milk year. Interest is fair-to-good with fresh deals on-going. US cheese exports were up 68 per cent from this time last year for the first four months.

CWT accepted bids for export assistance on sales of 3.5 mi lbs for delivery through the end of the year. Cheese sales are a key economic component of the US dairy industry. More and more US milk production is being allocated to cheese making. Almost 188.9 bi lbs of milk were marketed in the US with 127 bi lbs used for dairy product manufacture with cheese production making about 65 per cent of that. Continued growth in cheese consumption is a key factor in determining a good market outlook for the US dairy industry. The chart by USDA below shows this. More information can be found at: http://www.ers.usda.gov/Publication/LDP/2010/07Jul/LDPM19301/LDPM19301.pdf

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday. The JUNE’11LC contract closed at $103.200/cwt, up $0.475/cwt and $0.80/cwt over last report. AUG’11LC futures closed at $104.025/cwt; up $0.550/cwt and $0.70/cwt higher than last Monday. Traders leaving short positions and reduced corn prices weighed on futures. At the opening bell fat cattle dropped in reaction to a strong dollar, lower crude oil, a weak stock market, and profit taking. However, the turnaround picked up steam in the pits and never let up. USDA on Friday put beef exports for April at 223.20 mi lbs, down from March’s 245.29 mi lbs but up from 177.175 mi lbs a year ago. An increase in boxed-beef prices added support amid worries about demand that are limiting upside potential.

USDA on Monday put choice beef prices at $172.54/cwt; up $0.99/cwt but $4.39/cwt lower than a week ago. A sluggish economy is not good for beef demand because it encourages consumers to buy cheaper cuts of meats, as well as turn to other sources of protein such as chicken and pork. USDA put the 5-area-average at $106.04/cwt; $1.32/cwt higher than last week at this time. According to HedgersEdge.com, the average packer margin was lowered $50.10/head from a week ago to a positive $49.00/head based on the average buy of $105.77/cwt vs. the average breakeven of $109.63/cwt. Prices are expected to soften in the coming weeks as more cattle at heavier weights come to market.

FEEDER CATTLE at the CME closed up on Monday in light volume. The AUG’11FC contract settled at $124.775/cwt, up $1.150/cwt and $0.675 higher than this time last week. The NOV’11FC contract settled at $128.775/cwt, up $1.175/cwt and $1.425/cwt over last report. Profit taking after Thursday’s gains held upward momentum in check. Gains despite the weakness were due in part to traders exiting short positions. Estimated receipts in Oklahoma City were put at 7,600 head vs. 6,115 last Monday and 7,265 a year ago. Compared to last week demand was moderate-to-good for feeders while calves were steady to $2/cwt higher. The latest CME feeder cattle index was placed at $124.33; up $0.19 and $0.20 over last report.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday after recently reaching life-of-contract highs. The JULY’11 contract closed at $7.824/bu; off 4.5 ¢/bu and down 50.5 ¢/bu. The DEC’11 contract closed at $7.044/bu; down 8.0 ¢/bu and 37.5 ¢/bu lower than this time last week. Speculators, funds, and even farmers got in gear selling corn taking profits while improved crop weather, and lower crude oil pressured prices. Grain supplies are expected to remain very tight for two or three years given USDA’s recent projections released last week. Corn that got planted and not drowned out is expected to do well. Even though large funds cut net bull positions nearly 5 per cent, bull positions cover 9.8 bi bushels while there are 9.4 bi bu in short positions.

USDA’s World Agriculture Supply Demand Estimate (WASDE) projected US feed grain supplies for 2011/12 sharply lower. Planted acres were lowered 1.5 mi ac from March. Harvested acres were lowered 1.9 mi ac to 83.2 mi acres on reduced planting and flooding. Production is projected at 13.2 mi bu, down 305 mi bu from the May WASDE report but still a record 753 mi from 2010/11. Ending stocks were lowered 35 mi bu showing a stocks-to-use ratio of 5.2 per cent compared to 5.4 per cent last year. The season average farm price is now projected at $6-$7/bu. More harsh weather could drive corn prices beyond $8/bu. USDA put corn-inspected-for-export at 32.084 mi bu vs. estimates for 30-35 mi bu. Weather will drive prices the next few weeks. Fundamentally, corn prices should remain strong for some time to come.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed mixed on Monday. The JULY’11 contract closed at $13.826/bu; down 4.5 ¢/bu and 6.0 ¢/bu lower than last report. NOV’11 soybean futures closed 5.0 ¢/bu lower at $13.766/bu but 40.0 ¢/bu higher than last report. Deferred contracts were gainers. Although adverse weather has slowed soybean planting progress production estimates remained unchanged. Lower export projections for 2010/11 contribute to higher beginning stocks. Exports for 2010/11 were reduced 10 mi bu to 1.54 bi bu. US soybean ending stocks for 2010/11 are now projected at 180 mi bu vs. the previous 170 mi bu. Export expectations for 2011/12 were down 20 mi bu to 1.52 bi bu on competition from South America’s big crop. With larger supplies and reduced exports, ending stocks for 2011/12 were up 30 mi bu to 190 mi bu. The US season average farm-gate price for 2011/12 is now projected at $13-$15/bu; up $1/bu on both ends of the range. USDA put soybeans-inspected-for- export at 6.78 mi bu vs. expectations for 7-10 mi bu. Fundamentally some signs of price weakness are showing.

WHEAT futures in Chicago (CBOT) closed down on Monday on support from the red-hot corn market. JULY’11 futures finished 16.25 ¢/bu lower at $7.430/bu and 10.0 ¢/bu lower than last report. The DEC’12 contract closed at $8.164/bu; off 9.25 ¢/bu and 26.75 ¢/bu lower than this time a week ago. Investors exited bear spreads, buying nearby wheat and selling deferreds. Volume was the largest since August 2010, with more than 250,000 lots changing hands. This is more than double the 30-day and 250-day averages.

The USDA WASDE report lowered supplies for 2011/12 wheat on reduced carry-in offsetting increased production expectations. Beginning stocks were lowered 30 mi bu on lower imports and higher exports expected for 2010/11.

All-wheat production for 2011/12 was raised 15 mi bu to 2.058 mi bu. Winter wheat production was raised 26 mi bu. US wheat usage for 2011/12 remained unchanged, above the 10- year average. The US season farm-gate price for the 2010/11 was raised 5 ¢/bu to $5.70/bu while the 2011/12 price was projected at a record $7-$8.40/bu; up 20.0 ¢/bu cents on both ends of the range. Exports were neutral with USDA putting wheat-inspected-for-export at 23.93 mi bu vs. expectations for 23-26 mi bu. Wheat prices should remain steady-to-firm.

LEAN HOGS on the CME closed mixed on Monday with most contracts up except for the August ’11 and April ‘12. The JUNE’11LH contract closed at $92.475/cwt; up $0.775/cwt and $2.775/cwt higher than a week ago. AUG’11LH futures closed at $92.375/cwt; off $0.450/cwt but $3.325/cwt over last report. Hogs posted solid gains on higher cash pork prices. Supplies look to be tightening. Consumers are expected to start buying more pork over beef as the economy limps along. US exports were good. There was fresh news that South Korea will double tariff-free pork imports to 260,000 metric tons. USDA put the pork cutout at $90.71/cwt; up $1.83/cwt and $0.94/cwt higher than this time last week. According to HedgersEdge.com, the average packer margin was lowered $4.95/head to a negative $8.35/head based on the average buy of $68.06/cwt vs. the average breakeven of $64.97/cwt. The latest CME lean hog index was placed at $90.58; up $0.07 but $0.96 lower than last report.

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