Weekly Roberts Market Report

US - Drought in South America is seen as decreasing South American soybean output by up to two per cent, while farmers in the US say they will plant more corn, writes Michael T. Roberts.
calendar icon 28 March 2012
clock icon 5 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 on Monday with the exception of the April 2012 contract. MAR’12DA futures closed at $15.64/cwt; up $0.01/cwt. The MAY’12DA contract closed at $15.34/cwt; up $0.23/cwt. JULY’12DA futures closed at $16.12/cwt; up $0.14/cwt. Spot Cheddar block and barrel markets were quit. USDA’s Livestock Slaughter report released last Friday showed dairy cow slaughter at 525,000 year-to-date; 12,000 head more than this time last year. USDA’s more recent Milk Production report showed the US dairy herd increased by 27,000 head for the same period. Despite greater slaughter, the dairy herd continues to expand. Fundamentals do not support recent price increases. Milk production is increasing on a weekly basis with no peak in view. Current strength is most likely the result of traders wanting to get out of recently established short positions due to cheese price movement. Prices for Class III futures were: 3 months out = $15.53/cwt ($0.06/cwt lower than last report); 6 months out = $15.81/cwt ($0.10/cwt under a week ago level); 9 months out = $16.09/cwt ($0.06/cwt less than this time last week); and 12 months out = $16.12/cwt ($0.04/cwt under a week ago).

The All Milk Price for 2012 has declined over $2/cwt from January through February.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday with the exception of August 2012 and June 2013 contracts. The APR’12 contract finished at $124.550/cwt; up $0.050/cwt. JUNE’12LC futures closed at $121.100/cwt; even with Friday’s close. DEC’12LC futures closed at $130.075/cwt; up $0.200/cwt. According to pit sources cattle futures were mixed while traders took in last Friday’s bearish supply report and after the demise of a common ground-beef filler. Last Friday USDA showed a greater-than-expected number of cattle placed in feedlots coming off drought and dry grass from the southern Plains. The number of cattle marketed was lower than expected and also fundamentally negative for prices. On the other hand several pit sources thought this news was already factored into the market. Additionally, traders are trying to gauge the impact of the rapid phasing out of lean finely textured beef, which critics describe as “pink slime.” Many grocery store chains now say they won’t sell beef containing those trimmings. The American Meat Institute said Monday that it could take an additional 1.5 mi head of cattle to make up the difference in meat lost by phasing out those trimmings thereby fundamentally supporting the market even though in the near-term prices could be negatively affected. In a word, tight beef supplies could get even tighter. Cash cattle markets were slow on Monday but are expected to pick up later in the week since packers laid off buying last week. USDA on Monday put box beef prices at $191.74/cwt; down $0.91/cwt and $5.24/cwt lower than a week ago. According to HedgersEdge.com, the average packer margin was lowered $18.30/cwt to a negative $70.80/head based on the average buy of $126.55/cwt vs. the breakeven of $119.73/cwt. Late Monday, March 5, USDA put the 5-area average price at $126.60/cwt; $0.20/cwt over last report.

FEEDER CATTLE at the CME finished mixed on Monday. Nearbys were strong while deferreds were lower. APR’12FC futures finished at $152.550/cwt; up $0.125/cwt. The AUG’12FC contract closed $0.050/cwt lower at $156.100/cwt. Some profit taking occurred owing to recent news affecting live cattle fundamentals. The Oklahoma National Stockyard feeder cattle auction estimated receipts for Monday, 3/26/12 at 5,000 head compared to 7,502 last week and 7,940 a year ago. Compared to last week feeder steers and heifers were steady to $3/cwt higher. Stocker steers and steer calves $4-$8/cwt higher. Stocker heifers and heifer calves were $8-$10/cwt higher. Demand was moderate-to-good for feeders and very good for stockers and calves. The CME feeder cattle livestock index was placed at 154.21; up 0.16 and 0.37 over this time last week.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The JULY’12 contract closed at $6.360/bu; down 8.5¢/bu. The DEC’12 contract closed at $5.532/bu; off 4.25¢/bu. After following soybeans higher most of the day Corn futures fell back on profit taking and some technical selling. Worries over an expected large crop and thoughts that corn plantings in the US could even go higher weighed on prices. USDA will publish the much anticipated Prospective Plantings report on Friday, March 30 and its World Agriculture Supply Demand Estimates (WASDE) and Crop Production reports on April 10. Large speculators increased net-bull positions to 311,712 contracts. Exports were bearish with USDA putting corn-inspected-for-export at 22.216 mi bu vs. trade estimates for 28-33 mi bu. Corn producers should consider pricing up to 50 per cent of the 2013 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The MAY’12 contract closed at $13.794/bu; up 13.75¢/bu. NOV’12 futures closed at $13.294/bu; up 7.0¢/bu. Soybeans reached fresh six-month highs on concerns of a smaller South American crop and expectations for small growth in US soybean plantings. Drought in South America is seen as decreasing SA soybean output by up to 2 per cent while farmers in the US say they will plant more corn. Exports were bullish with USDA putting soybeans-inspected-for-export at 24.913 mi bu vs. trade estimates of 20-29 mi bu. This is well ahead of the 13.2 mi bu needed to stay on pace with USDA’s 1.275 bi bu demand projection. Expectations for greater Chinese demand for US soybeans are also driving the futures rally. Basis for US soybeans at export terminals strengthened in anticipation of increased sales to China. Farm selling has slowed. Some spillover pressure from corn trimmed gains near the close. The carry in the May-to-July futures spread weakened representing a bullish commercial outlook. New-crop inverses continue to strengthen, indicating a longer-term bullish commercial outlook. Technically, the short-term trend turned up after the May contract posted a new high. Now is a very good time to price up to 40-50 per cent of the 2012 crop.

WHEAT futures in Chicago (CBOT) closed up on Monday. The MAy’12 contract closed at $6.594/bu; up 5.25¢/bu. JULY’12 wheat futures finished at $6.702/bu; up 5.75¢/bu. Wheat futures were supported by concerns for dry weather in Europe’s wheat belt and the risk of frost damage to the US winter wheat crop. Follow-through non-commercial short covering also supported the rally. Exports were bearish with USDA putting wheat-inspected-for-export at 15.358 mi bu vs. trade estimates for 23-28 mi bu. Export inspections were below the 15.4 mi bu needed to stay on track with USDA’s 1.0 bi bu projection. European wheat millings were up 1.5 per cent for the week ending March 23, 2012. Considering the weakening underpinnings now would be a very good time to sell up to 35 per cent of the 2012 crop.


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