Weekly Roberts Market Report

US - Speculative and commercial buying in both old crop and new crop soybeans were supportive, writes Michael T. Roberts.
calendar icon 4 April 2012
clock icon 9 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 September 2012 contract. APR’12DA futures closed at $15.84/cwt; up $0.18/cwt. The MAY’12DA contract closed at $15.81/cwt; up $0.15/cwt and $0.47/cwt higher than a week ago. JULY’12DA futures closed at $16.42/cwt; up $0.02/cwt and $0.30/cwt over this time last Monday. The USDA planting report put out last Friday increased market uncertainty for dairy producers. The report put US corn plantings at its highest level since 1937. This could mean lower feed prices. Milk prices will be mostly affected by milk production in the near term. Commercial fluid offtake in all products declined 1.8 per cent for all of 2012. However, Oceania milk production is higher than last year. New Zealand milk production is 9 per cent over this time last year while Australia’s is up 4 per cent year-over-year. Cheese prices this week seemed to be close to bottoming out. Commercial disappearance of American cheese in 2011 increased 0.6 per cent with other cheese disappearance up 4.2 per cent. Milk plants are showing signs of not taking extra discounted milk for cheese processing as their regular receipts have grown significantly. Butter prices were steady to weak with no buyers in sight. This was expected coming off filled Easter orders. Slower-than-expected exports could begin to back up supply increasing stocks substantially. Prices for Class III futures were: 3 months out = $15.74/cwt ($0.21/cwt higher than last report); 6 months out = $15.16.20/cwt ($0.39/cwt over a week ago level); 9 months out = $16.31/cwt ($0.22/cwt more than this time last week); and 12 months out = $16.28/cwt ($0.16/cwt over a week ago). There may be some opportunity for risk management in the near term. Corn prices have eased and have potential for more declines against upticks in milk price if supply settles in. The graphs below are for January – February and showing trends for the first of 2012.

Hopefully the milk margin for Feb.-Mar. will show a trend reversal. It will increasingly depend on cow numbers and milk production. The industry could control some of its destiny in light of the huge potential for lower feed prices.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday. JUNE’12LC futures closed at $120.850/cwt; up $0.40/cwt but $0.25/cwt lower than last report. The AUG’12LC contract closed at $120.250/cwt; up $0.575/cwt. DEC’12LC futures closed at $127.925/cwt; up $0.825/cwt but $2.15/cwt lower than last week at this time. Live cattle were supported by higher commodity and equity markets, as well as an industry poll showing 586,000 head processed last week vs. USDA’s estimated 602,000 head. Spreading and some technical trading were supportive of live cattle. Floor sources in the pit said today’s gains were in response to sharp losses last week. Technically speaking beef futures are near oversold. A modest rebound could be expected this week. The April ’12 contract was the most active and is currently trading about $0.40/cwt below average cash prices. This encouraged hedgers to cover short positions following last week’s deep losses. Beef demand dropped sharply last week on reports of “pink slime.” I rarely voice anything but strict market analysis in this report but to be blunt, I will take an exception this time to voice my Opinion. People have used social and other media to bias a product that is very safe. Others have joined the band wagon and stopped buying ground beef without finding out the facts. It is unfortunate and unfair folks coined and then let the media propagate a term like “pink slime” in order to influence an entire industry. The consumer just doesn’t know that the pink product is the result of a very efficient processing scheme. The average US consumer of ground beef also doesn’t know that the price of beef will go higher if this product is discarded. Ok … I’m through. The Plains and Midwest cash cattle markets were quiet on Monday. Cash traders seem to be analyzing demand signals on this week’s showlists. No bids were reported for the week yet but some cattle in Texas were priced at $126.00/cwt; up $0.10/cwt from bulk sales last week. USDA on Monday put box beef prices at $184.10/cwt; up $0.73/cwt but $7.64/cwt lower than a week ago. According to HedgersEdge.com, the average packer margin was lowered $36.60/cwt to a negative $107.40/head based on the average buy of $126.12/cwt vs. the breakeven of $116.35/cwt. This is an estimate of packer returns on processed cattle expressed in the form of an index. Late Monday, April 2, USDA put the 5-area average price at $125.67/cwt; $0.93/cwt lower than last report.

FEEDER CATTLE at the CME closed mixed on Monday. APR’12FC futures finished at $149.525/cwt; up $0.70/cwt but $3.025/cwt lower than a week ago. The AUG’12FC contract closed $0.050/cwt lower at $152.650/cwt and $3.45/cwt lower than last report. Feeders were supported by spillover from fat cattle. Talked to a fellow from Texas last week who said there were still some serious pockets of drought that were pushing feeders to feedlots sooner rather than later. This could be affecting some cash prices. The Oklahoma National Stockyard feeder cattle auction estimated receipts for Monday, 4/2/12 at 7,400 head compared to 4,788 last week and 8,262 a year ago. Compared to last week feeder steers and heifers were $4/cwt lower. Steer calves were $2-$4/cwt lower while heifer calves were $10-$15/cwt lower. Demand was weak for stockers and calves owing to the full stocking rates already in place on pastures. The CME feeder cattle livestock index was placed at 153.93; off 0.28 and 0.12 lower than this time last week.

CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The JULY’12 contract closed at $6.510/bu; up 7.75¢/bu and 15.0¢/bu higher than last Monday’s close. The DEC’12 contract closed at $5.450/bu; up 4.75¢/bu but 8.25¢/bu lower than last report. Old crop corn seems to be attracting strong buying interest and supporting prices even though USDA’s Prospective Plantings and Quarterly Grain Stocks report was fundamentally bearish for corn. The March 2012 USDA plantings report is the largest since 1937. USDA said that 95.9 mi ac of corn are expected to be planted in 2012. This is 4 per cent higher than last year, 9 per cent higher than 2010, and above average trade estimates for just under 95 mi ac. In 1937 US farmers planted an estimated 97.2 mi ac. Below is a chart from USDA showing corn planted acres and the year-over-year change.

In addition, the US corn crop planting pace is off to a very quick start. USDA placed the US corn crop at 3 per cent planted vs. the 5-year average of 2 per cent. This doesn’t mean that yields/acre will be larger. In fact, history shows the earlier the crop has been planted average-to-less-than-average yields have been made. Weather will be closely watched by traders as a freeze event is still statistically likely. Emerging plants are more susceptible to freezing temperatures. Lower corn stocks as of March 1, 2012 indicate that a lot of old crop corn has been sold off and emphasizes that commercial users could maintain bidding vigor in the short run. Exports were supportive with USDA putting corn-inspected-for-export at 30.989 mi bu vs. estimates for 25-30 mi bu. Technically speaking there is some support for a short upside bounce in prices in the near-term since corn is near oversold. The December 2012 contract Relative Strength Index (RSI) finished at 30.84. A contract is said to be oversold at or below 30. Speculative buying interest should continue in the short run as long as old crop supplies are short. Corn growers should seriously consider selling all old crop supplies at these prices; pricing up to 50-60 per cent of the 2012 crop and even some of the 2013 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The MAY’12 contract closed at $14.210/bu; up 18.0¢/bu and 41.75¢/bu over last report. NOV’12 futures closed at $13.852/bu; up 27.25¢/bu and 55.75 cents higher than a week ago. The market continued the seasonal uptrend. Speculative and commercial buying in both old crop and new crop soybeans were supportive. Old crop global supplies are shrinking and corn is taking away enough acres from soybeans that could allow the US soybean crop to reach historically low levels. Soybean plantings for 2012 were estimated at 73.9 mi ac, down 1 per cent from last year, down 5 per cent from 2010, and below recent trade estimates. About 75 mi ac need to be planted in order to keep soybean ending stocks from running precariously low next year. China again was the big US soybean buyer. Exports were supportive with USDA putting soybeans-inspected-for-export at 28.855 mi bu vs. estimates for 20-27 mi bu. This is more than twice the amount needed to stay on USDA’s target estimate of 1.275 bi bu. Soybean crops in South America hurt severely by drought are driving soybean futures higher still on expectations that lower South American supplies will support more export demand for US soybeans. Soybean prices should remain firm in a bidding war with corn. At these near-term prices soybeans are now more profitable per acre than corn (barely so but still more profitable). Technically speaking soybeans still run the risk of an extended decline due to the large number of long positions held by speculators, especially if traders want to take profits aggressively. Producers should consider selling all old crop soybeans at this time while getting to 40 per cent sold in the 2012 crop and 20 per cent sold in the 2013.

WHEAT futures in Chicago (CBOT) closed down on Monday. The MAy’12 contract closed at $6.570/bu; down 3.75¢/bu and 24.0¢/bu lower than this time last Monday. JULY’12 wheat futures finished at $6.694/bu; off 4.5¢/bu and 0.75¢/bu lower than a week ago. Winter wheat futures were pressured by weather forecasts for rain seen as potentially increasing yields and therefore supply. Follow-through profit taking off Friday’s highs was noted. Spring wheat futures were supported on USDA’s report forecasting lower-than-expected spring wheat acreage. The lack of price support indicates a continued bearish global stock situation in the long-term. USDA estimated wheat plantings of 55.9 mi ac were 3 per cent higher than the 2011 crop but 1 per cent lower than expected. Spring wheat plantings were 8 per cent higher than 2011 and 2 per cent higher than the 5-year average. USDA placed the US winter wheat crop in good-to-excellent condition at 58 per cent vs. 37 per cent this time last year. This is the first winter wheat crop condition report for 2012. Exports were not supportive with USDA putting wheat-inspected-for-export at 15.391 mi bu vs. estimates for 15-20 mi bu. If you didn’t get some of the 2012 crop prices last week now would be a very good time to considering doing so.

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