14 December 2011

5 minute read

North America

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed mixed with nearbys December ’11 and January ’12 lower while the rest of deferreds closed higher. DEC’11DA futures finished at $18.56/cwt; down $0.03/cwt and $0.14/cwt over last report. The JAN’12DA contract closed at $16.75/cwt; off $0.11/cwt and $0.73/cwt lower than last week at this time. MAR’12DA futures closed up $0.04/cwt.

Compared to last year at this time fluid milks sales are off over 1 per cent. USDA expects milk production for 2012 to increase 100 mi lbs. According the USDA’s WASDE report released last Friday production will reach 198.5 bi lbs, 2.4 bi lbs over this time last year. The Trade in cheese butter, and powder this week was very slow while last week barrel trade was brisk.

Current average futures prices for Class III milk are: three months out = $17.44/cwt ($0.38/cwt lower than a week ago); six months out = $17.12/cwt ($0.35/cwt lower than last report); ninth months out = $17.09/cwt ($0.28/cwt lower than last Monday); and 12 months out = $17.07 ($0.22/cwt under a week ago). Prospects for increased milk production will continue to pressure milk prices.

Now is the time to price several weeks’ feed needs and put short-hedges in place for up to at least three month’s milk production. At the very least producers should consider buying Put options to establish a price floor and forward price grain for three month’s needs.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished up on Monday. The DEC’11LC contract closed at $118.450/cwt; up $0.150/cwt but $$0.45/cwt lower than a week ago. JUNE’12LC futures closed at $121.47/cwt; up $0.0075/cwt but $2.105 under last report.

Fat cattle futures closed higher after signals from wholesale and export markets helped futures overcome early losses. A global sell-off in stock and commodity markets weighed on prices. USDA reported stronger wholesale beef prices.

Late Monday USDA put choice beef prices at $189.26/cwt; up $4.12/cwt from Friday but $0.92/cwt lower than a week ago. Meat export increases in October near 22 per cent were supportive. Year-to-date export levels are the highest on record. Processors are slowing slaughter because of large negative margins. Due to slack packer demand USDA on Monday placed the 5-area average fat-cattle price at $120.52/cwt; $4.35/cwt lower than a week ago.

These lower cash cattle prices are in response to record low packer margins coupled with the fact that packers have mostly filled kill lists prior to the holidays.

Additionally, it should be noted that two shortened processing weeks are on the horizon. Last Friday the margin was the lowest since December 2003’s $101.95/hd. On Monday according to HedgersEdge.com, the average packer margin was lowered $25.65/hd to a negative $112.10/head based on the average buy of $124.89cwt vs. the average breakeven of $115.15/cwt.

FEEDER CATTLE at the CME closed up on Monday. The JAN’12FC contract settled at $145.000/cwt; up $0.900/cwt and $0.70/cwt over last report. APR’12FC futures finished at $146.375/cwt; up $0.775/cwt but $1.075/cwt lower than a week ago. On Monday, December 12, 2011 the Oklahoma City Feeder Cattle auction estimated receipts at 11,800 head vs. 7,577 head a week ago and 9,176 head this time last year.

Feeder steers were $1-4/cwt lower while feeder heifers were $2/cwt higher. Steer and heifer calves were $2-5/cwt lower. Demand was considered weak for all quality classes, except good for feeder heifers. Are producers considering building the herd again? Time will tell.

The CME feeder cattle index was placed at $145.31; up $0.55 and $0.93 higher than last report.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday with the exception of the December 2011 contract which closed even with last Friday. The DEC’11 contract closed at $5.854/bu; even with Friday’s close but 52.0¢/bu higher than last report. MAR’12 futures closed at $5.940/bu; off 0.25¢/bu but 30.0¢/bu over last week’s close. The DEC’12 contract closed down 3.75¢/bu at $5.480/bu and 56.0¢/bu lower than last report.

Falling equities based on Eurozone woes and a strong US dollar weighed on prices. Exports were supportive with USDA putting corn-inspected-for-export at 35.674 mi bu vs. estimates for 28-35 mi bu. CFTC data showed that large speculators had cut net bull positions in CBOT corn for the fourth straight week.

Traders told me today they were expecting more declines in corn futures after near term strength runs out. Fund buying late in the session helped prices recover most early losses. Last week’s USDA World Agriculture Supply Demand Estimate (WASDE) was considered bullish for corn.

Chart signals (descending triangle) indicate near-term upside potential but continued weakness about a month out as the right shoulder of a reverse head-and-shoulders formation shapes up. Measuring objective is calculated at $5.834/bu; +/- 10.5¢/bu.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. JAN’11 soybean futures closed 5.0¢/bu higher at $11.120/bu but 24.25¢/bu under last report. The MAR’12 contract closed at $11.222/bu; up 5.75¢/bu but 14.25¢/bu lower than last Monday. NOV’12 futures closed at $11.370/bu; up 1.75¢/bu and 11.5¢/bu over last week at this time.

Short covering, profit taking and concerns that dry weather in South America limiting production there were supportive. A firm US dollar didn’t seem to matter on short global supply worries. Farmers in Brazil & Argentina have virtually stopped planting due to dry conditions.

Europe’s latest plan to resolve the euro zone debt crisis didn’t convince traders that it was working. Exports were bearish with USDA putting soybeans-inspected-for-export at 29.749 mi bu vs. estimates for 34-38 mi bu. November exports from China were up 49+ per cent over October.

Large speculators cut net bull positions in CBOT soybeans on profit taking. USDA’s WASDE report last week was considered bullish for US soybeans. November 2012 soybean futures show upside potential a few weeks out.

WHEAT futures in Chicago (CBOT) closed down on Monday with the exception of the nearby December ’11 contract. The DEC’11 contract closed at $5.754/bu; up 2.0¢/bu but 23.25¢/bu lower than last report. JULY’12 wheat futures finished at $6.270/bu; down 6.25¢/bu and 15.5¢/bu lower than a week ago.

A firm US dollar seen as limiting future exports and worries over the Euro-crisis overseas had investors taking money out of commodity markets. Good prospects for US Plains crop development also weighed on prices.

Exports were considered neutral with USDA putting wheat-inspected-for-export at 16.504 mi bu vs. estimates for 15-19 mi bu. Bangladesh and Jordan made significant tenders for optional-origin wheat while Iraq switched to Russian wheat from US wheat.

Heavy late spring rains lowering quality prospects for Australia’s bumper crop were supportive for US wheat futures. Last week’s USDA’s WASDE report was considered bearish for wheat tempering price enthusiasm. A narrowing, descending triangle indicates upside potential but not too much for in the near term.