Weekly Roberts Market Report

US - Who says producers are getting rich? Rising nitrogen costs are partially a function of higher US fuel costs encouraging nitrogen imports. Fertiliser is an important component of production costs for crops, especially corn, writes Michael Roberts.
calendar icon 24 August 2011
clock icon 6 minute read

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

Nitrogen fertiliser production is energy-intensive as natural gas makes up 70 to 80 per cent of production costs.

US nitrogen fertiliser supplies, while historically domestic, have been increasingly imported over the past decade. Shares of US nitrogen fertiliser are now nearly equal between domestic and foreign suppliers.

This chart may be found in the ERS report, Impacts of Higher Energy Prices on Agriculture and Rural Economies, ERR-123, published in August 2011.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed higher on Monday with deferreds lower. The AUG’11DA contract finished at $21.53/cwt; up $0.05/cwt but $0.07/cwt lower than last report.

SEP’11DA futures finished at $18.70/cwt; up $0.05/cwt but $0.93/cwt under last report.

Milk futures settled higher amid relatively quiet trading. Butter futures were lower while cheese was mostly steady.

American cheese sales dropped off in July, increasing inventory levels while increased exports of butter shrunk inventories of that commodity. USDA put butter inventory at 42 days’ use; three days less than last year at this time.

CWT accepted bids to provide export assistance on sales of 1.83 mi lbs of cheese for delivery through the end of the year.

Year-to-date Cooperatives Working Together (CWT) has assisted in 62.3 mi lbs of exports.

The average prices for Class III milk are: three months out = $19.37/cwt ($0.44/cwt lower than a week ago); six months out = $18.47/cwt ($0.28/cwt under last report); nine months out = $17.99/cwt ($0.15/cwt lower than this time last week); and 12 months out = $17.73/cwt ($0.10/cwt lower than this time last week).

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished up on Monday. AUG’11LC futures closed at $114.650/cwt; up $0.35/cwt but $3.25/cwt lower than a week ago.

The OCT’11LC contract closed at $115.700/cwt; up $0.200/cwt but $4.400/cwt lower than last report. JUNE’12LC futures closed at $122.425/cwt; up $0.275/cwt but $1.925cwt under last report.

Outside market spillover was supportive. Floor sources said the pits were shocked by last Friday’s USDA the placement numbers. Last Friday’s bearish USDA report put July placements up 22 per cent over a year ago. The high placement figure is a direct result of the extreme drought pushing cattle to feedlots from pastures.

Marketings were placed at 100 per cent of a year ago vs average trade estimates for 96.5 per cent. Cash cattle markets were fairly quiet on Monday. USDA put the five-area average cash price at $113.96/cwt; $2.17/cwt lower than last report.

The trend is still up (see chart).

USDA on Monday put the beef cutout value at $187.42/cwt; up $0.63/cwt. Beef packer margins remain supportive but mixed wholesale beef prices could be a sign that grocers may curb buying interest soon as orders for Labor Day needs are filled.

According to HedgersEdge.com, the average packer margin was raised $33.30/head to a positive $57.75/head based on the average buy of $115.65/cwt vs the average breakeven of $120.10/cwt. A good grain-buying opportunity may be coming up in the near term.

FEEDER CATTLE at the CME closed up on Monday. The AUG’11FC contract finished at $133.475/cwt, up $0.175/cwt but $2.175/cwt lower than last report.

The NOV’11FC contract settled at $135.900/cwt, up $0.325/cwt but $4.100/cwt under last report. Feeder cattle were pulled up by live cattle and Augusts’ discount to CME’s cash feeder cattle index.

The Oklahoma City Stockyards estimated receipts at 7,000 head vs 7,162 last week and 9,878 this time last year.

Compared to last week steers were two to five dollars/cwt higher while eight to nine weights were lower indicating feeder cattle buyers had plenty of cattle in the lots.

Heifers were three to six dollars/cwt higher while steer and heifer calves were four to eight dollars/cwt lower. Demand was considered moderate to good in light volume. The latest CME feeder cattle index was placed at $134.39; down $0.19 and $0.28 lower than this time last week (See trend chart below).

CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. SEPT’11 futures closed at $7.204/bu; up 9.5 ¢ /bu and 13.25 ¢ /bu higher than last Monday. The DEC’11 contract closed at $7.344/bu; up 9.25 ¢ /bu and 14.5 ¢ /bu over last report.

Corn began trading with a 40.0 ¢ /bu daily trading limit on Monday, up from the previous 30.0 ¢ /bu limit. If a contract locks up or down the limit, limits expand by increments of 10.0 ¢ /bu until the limit trading is not reached then reverts to the original trading limit.

Reports of low US corn yield prospects, weather concerns for crop development, a weak dollar, and gains in crude oil and the US stock markets were supportive. Surveyed corn crops in the US Corn Belt showed signs of below-average yield potential after planting delays pushed development behind schedule.

Rain was spotty amid continuing drought conditions in many parts of the US Floor sources expected USDA to lower the US corn crop in good-to-excellent condition by one to two points.

USDA late Monday lowered the rating three per cent to 67 per cent. Exports were neutral-to-weaker with USDA putting corn-inspected-forexport at 29.5 mi bu vs. expectations for 28-35 mi bu. Chart signals indicated by a rising wedge and an elevated nine-day Relative Strength Index at 64.64 strongly suggest an approaching deep correction.

Resistance is measured at $7.365/bu. It might be a good idea to price another 10 per cent of the 2012 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The SEP’11 contract closed at $13.764/bu; up 16.75 ¢ /bu and 33.0 ¢ /bu over last report.

NOV’11 soybean futures closed 16.5 ¢ /bu higher at $13.582/bu and 70.0 ¢ /bu higher than a week ago. The MAR’12 contract closed at $13.976/bu; up 12.25 ¢ /bu and 28.75 ¢ /bu higher than this time last week.

Concerns for crop yields and strengthening crude and equity markets were supportive. As expected, USDA lowered the US soybean good-toexcellent crop rating by two points to 59 per cent.

Exports were steady-to-firm as late Monday USDA put soybeans-inspected-for-export at 10.854 mi bu vs. expectations for five to 13 mi bu. This was over double those of last week. It would be a good time to consider pricing up to 20 per cent of the 2011 crop.

WHEAT futures in Chicago (CBOT) closed up on Monday. SEPT’11 futures finished 4.75 ¢ /bu higher at $7.354/bu and 23.0 ¢ /bu over last week at this time.

The DEC’11 contract closed at $7.660/bu; up 4.75 ¢ /bu and 24.75 ¢ /bu higher than this time last week. JULY’12 wheat futures finished at $8.094/bu; up 4.25 ¢ /bu and 18.25 ¢ /bu higher than last report.

CBOT wheat was supported by worries over low yields and crop loss expectations due to reduced acreage flooded in key spring wheat states.

Dry weather also remains a concern in the US Plains hard red winter wheat growing region. Global wheat production is under pressure from poor production weather in key wheat growing countries such as France and Germany.

The winter wheat harvest continues on track in west Ukraine. Yields look better than average so far. Exports were bearish with USDA putting wheat-inspected-for-export at 17.4 mi bu vs. expectations for 20-25 mi bu.

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