13 July 2011

6 minute read

North America

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) finished up on Monday. The JULY’11DA contract finished at $21.13/cwt; up $0.13/cwt from Friday’s close. SEP’11DA futures finished at $18.64/cwt; up $0.09/cwt. The record high for July Class III milk futures is $21.38/cwt set back in July 2007. Cheese prices remain pressured with blocks settling lower. Butter and NDM were mostly unchanged. Cooler weather in California is helping dairy production there. The Southwest remains hot and dry while the Southeast is hot and wet. 5-10 degree hotter-than-normal weather east of the Rockies is contributing to falling milk volumes and component levels. Milk prices for the rest of the year look to average $0.60-$0.90/cwt over feed costs even though feed prices will remain high. Income-over- feed costs reflect daily gross income less feed costs for an average cow producing 65 lbs of milk/day. It doesn’t look like herd liquidation has begun even though cattle prices remain high.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed mixed on Monday. AUG’11LC futures closed at $114.700/cwt; up $0.050/cwt. The OCT’11LC contract closed at $120.650; up $0.450/cwt. JUNE’12LC futures closed at $122.650/cwt; down $0.050/cwt. A slowdown in beef consumption is expected due to a higher US dollar, lower stock market and crude oil futures, plus expected seasonal factors expected to limit prices. Cattle prices were also pressured by recent job news data showing employers hired the fewest number of workers in nine months in June while the unemployment rate remained at a six-month high of 9.2 per cent. August futures were pressured by October/August spreading as longs moved to deferred months. Spreading is expected to continue through Thursday. USDA put the 5-area average cash price at $114.88/cwt. USDA on Monday put choice beef prices at $179.19/cwt; off $0.48/cwt. According to HedgersEdge.com, the average packer margin was placed at a positive $29.90/head based on the average buy of $112.17/cwt vs. the average breakeven of $114.50/cwt.

FEEDER CATTLE at the CME closed down on Monday. The AUG’11FC contract finished at $143.350/cwt, down $0.250/cwt. The NOV’11FC contract settled at $144.700/cwt, off $0.550/cwt. Feeders were pulled down by live cattle and weak outside markets. Feeders peaked last week at a record $144.900/cwt in electronic trading. Demand for cash feeders has been strong. The feeder cattle market at the bell-weather Oklahoma City stockyards showed increased volume with estimated receipts at 14,000 head vs. 9,148 head a year ago. Severe drought is seen as forcing some to market but good feeder prices are the main driver. The latest CME feeder cattle index was placed at $137.48; up $1.14.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday with the exception of the July and September contracts. JULY’11 futures closed at $6.814/bu; off 9.25 ¢/bu. The DEC’11 contract closed at $6.326/bu; down 4.25 ¢/bu. Firm exports were supportive for nearby corn stocks. USDA put corn-inspected-for-export at 31.654 mi bu vs. expectations for 28-31 mi bu. Gains were limited by pressure on deferreds amid worries about global economic woes; a firm US dollar; falling crude oil futures; and a sharp fall in the DOW. Progress on Europe’s debt crisis has stalled while inflation is seen in China. A weak job’s report and the impasse on US budget talks aren’t helping. Weather concerns seen as potentially limiting corn yields during pollination is seen as bullish. Some price strength will most likely continue forming the right shoulder of a head-and-shoulders formation then decline as harvest nears and/or the economy worsens.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday with the exception of August and September futures due to spreading into and out of those months. The JULY’11 contract closed at $13.524/bu; up 0.5 ¢/bu. NOV’11 soybean futures closed 0.5 ¢ /bu higher at $13.470/bu. A soaring US dollar, plummeting crude oil, and falling equities limited the bulls. Warm weather in the US Midwest is seen as boosting crop growth and development. Plenty of moisture is stored in the soils after recent heavy rains. Traders are seen as evening up positions on recent, surprising crop reports. Soy prices in Rosario, Argentina closed unchanged. Soybean futures are in a sideways channel with prices up and down, plus or minus 20.0 ¢/bu cents of a horizontal line for the last five months. Look for prices to remain near these levels for the next month or so.

WHEAT futures in Chicago (CBOT) closed down on Monday. JULY’11 futures finished 14.5 ¢/bu lower at $6.360/bu. The DEC’11 contract closed at $6.740/bu; off 9.75 ¢/bu. The strength in the US dollar and worries of export competition pressured prices. Pit sources tell me they are concerned foreign demand will diminish as a stronger dollar makes US grain less attractive and other wheat producing nations sell wheat in the global market. Russia and Ukraine are preparing to ramp up export sales after limiting them for almost a year due to drought. Russia’s grain exports are forecast to almost triple this season after the Kremlin lifted its ban on shipments July 1. Russian farmers are expected to bring in a good harvest due to favorable crop conditions. Exports were weak with USDA reporting wheat-inspected-for-export at 21.1 mi bu vs. expectations for 23-26 mi bu. Wheat prices are expected to continue to weaken.

LEAN HOGS on the CME finished up on Monday. The JULY’11LH contract closed at $96.125/cwt; up $0.250/cwt. AUG’11LH futures closed at $99.175/cwt; up the limit $3.000/cwt. Higher pork buying by China is seen as leading to tighter supplies of meat and protein. China is the world’s largest consumer of pork while demand increases on growing a middle-class population demographics. This could boost US meat exports which packers like more than domestic sales because of higher profits in that trading sector. Pork prices in China have surged recently and become a major inflation driver there. The Chinese Premier, Wen Jiabao singled out the nation’s pork prices while on tour of rural areas Monday promising the government will limit runaway food prices. Wen’s comments come as overall Chinese inflation reached a three-year-high in June. More people in China are included in the middle class on rising incomes and eating more pork. Mr. Jiabao said, “Stabilizing pork markets is the responsibility of the government and that responsibility will not be shirked.” China is seen as likely buying more US and global corn stocks to feed home grown hogs while simultaneously paying for more pork imports. Bearish US and world economic news seemed to have no effect on CME hog futures. USDA put the pork cutout at $97.15/cwt; up $0.56/cwt. According to HedgersEdge.com, the average packer margin was placed at a positive $2.60/head based on the average buy of $69.04/cwt vs. the average breakeven of $70.02/cwt. The latest CME lean hog index was placed at $98.57; down $0.73.