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Weekly Roberts Market Report

01 August 2012

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

US - The US House of Representatives is scheduled to vote this week on extending the current 2008 farm bill by one year in order to reinstate emergency drought and other aid for farmers and ranchers. Sources confirm that included in the proposal will be help for producers to deal with losses from widespread drought for corn and soybean production and elevated livestock prices, writes Michael Roberts.

House Agriculture Committee Chairman Frank Lucas (R., Okla.) said Saturday that drought assistance measures would be revived in a one-year extension of the 2008 farm bill by cutting funding for subsidy programs. The 2008 farm bill is set to expire on September 30, 2012 there is some doubt whether or not there is enough support in the House to pass a new 2012 five-year farm bill. The Senate passed its version of the new 2012 farm bill on 21 June, but the House leadership has yet to schedule a vote on its own version. Mr Lucas said he is trying to get a House floor vote on the new 2012 farm bill his committee approved on July 12 that would reduce spending by $35 billion over 10 years by cutting agriculture subsidies, food-stamp spending and other programs. Both bodies of Congress must pass a version and then create a unified bill before it can be signed into law.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up on Monday. JULY’12DA futures closed at $16.67/cwt; even with last Friday’s close and last report. The SEPT’12DA contract closed up $0.15/cwt at $18.50/cwt; down $0.62/cwt from a week ago. Fundamentally things haven’t changed much, feed costs are high and hot weather has cows milking less. Cheese prices were steady-to-lower causing some selling. Butter prices were steady with overall demand good. Producers are trying to cut ration input costs and culling heavier trying to stretch feed supplies. Overall US milk production remains relatively strong. USDA put milk production in the 23 reporting states for June 2012 up 1.0 per cent from June 2011at 15.5 billion lbs. Milk production the Southeast region continues to deteriorate. Farm milk production is also following the seasonal downward trend across the country as cows are dried off. Pasture conditions continue to decline in many states with Pennsylvania reporting 63 per cent of its pastures in poor-to-very poor condition. Widespread drought conditions continue to impact crops and pastures. The government has announced that to help find livestock feed, some acreage enrolled in Conservation Reserve and Wetland Reserve programs is now eligible for haying and livestock grazing on a short-term basis. Class III futures were: 3 months out = $17.44/cwt ($0.43/cwt lower than last report); 6 months out = $18.10/cwt ($0.34/cwt lower than a week ago); 9 months out = $18.08/cwt ($0.37/cwt lower than last Monday); and 12 months out = $18.05/cwt ($0.33/cwt lower than last report). For North Carolina dairy producers who are purchasing all of their feed, the situation doesn’t look good. Plugging numbers into the North Carolina Extension 200 Cow conventional dairy enterprise budget using $8.70/bu corn; $475/ton soybean meal; and $185/ton hay for a 23,000lb/cow herd, feed costs have jumped to $16.61/cwt of milk produced and the breakeven milk price jumps to about $23.29/cwt. For a 20,000lb/cow herd, feed costs shoot to $19.10/cwt of milk and the breakeven milk price skyrockets to $26.61/cwt. It would be seriously wise to consider options and forward pricing in these lean-margin times.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were up Monday. The AUG’12LC contract closed at $119.650/cwt; up $0.050/cwt and $1.05/cwt over last report. DEC’12LC futures closed at $128.650/cwt; up $0.225/cwt and $2.075/cwt higher than this time last week. APR’13LC futures closed at $134.900/cwt; up $0.175/cwt and $2.600/cwt over last report. Higher feed costs, continued weak retail demand, and feeders moving of barren pastures weighed on prices. Fundamentally expectations for a much smaller US cattle herd in the coming months are supportive. Most cash markets were slow on Monday with expectations for slightly higher prices mid-week. On Monday USDA put the 5-area weekly steer average at $114.21/cwt. Please see graph:

USDA put boxed beef at $177.62/cwt; up $0.68/cwt from Friday; but down $6.22/cwt from two weeks ago. According to HedgersEdge.com, the average packer margin was raised $4.45/head from two weeks ago to a negative $1.85/head based on the average buy of $113.54/cwt vs. the breakeven of $113.40/cwt.

FEEDER CATTLE at the CME finished mixed on Monday. The AUG’12FC contract closed $0.500/cwt higher at $138.250/cwt; and $2.60/cwt over last report. NOV’12FC futures closed at $144.300/cwt; down $0.600/cwt but $2.80/cwt higher than a week ago. The soon-expiring feeder cattle futures contracts were the only ones to close higher. Demand for feeders has stabilized amid higher feed costs and hot weather seen as limiting weight gains. For Monday 7.30.12; estimated receipts at the closely watched Oklahoma City market were put at 4,496 head vs. last week’s 5,137 head and 5,819 head this time last year. Steers and heifers were $2-$4 lower. Both steer and heifer calves were $2-$3 lower. Demand was considered very good for the limited numbers. Quality was plain to average.


This table shows the maximum price a producer could pay for feeder cattle and still break even, assuming the costs and conversion/performance factors listed above. Producers should remain aware that calculations are based on averages. Courtesy DTN.

The CME feeder cattle livestock index was placed at 134.72; down 0.54 and 11.89 lower than last report. Please see chart:

CORN futures on the Chicago Board of Trade (CBOT) finished up on Monday. The SEPT’12 contract closed at $8.200/bu; up 21.5¢/bu and 6.0¢/bu higher than last Monday’s close. The DEC’12 contract closed at $8.140/bu; up 20.75¢/bu and 28.75¢/bu over last report and established a new life-of-contract high. Continued drought concerns on dry forecasts amid uncertainty about the ultimate size of the crop were supportive. The drought categories of extreme and exceptional, as noted on the graphs below expanded 7 per cent last week. This is the highest level of drought affected acreage since 2003 and the largest weekly increase in the extreme and exceptional categories since Drought monitoring began in the US in January 2000. See US Drought Monitor graphs:





Reduced demand for US high-priced corn limited prices somewhat. Livestock industry representatives have asked the government to temporarily halt the ethanol-production mandate that forces much of the crop into fuel. While demand rationing is taking place strengthening inverse in futures spreads show that end users don’t believe it is enough to offset the expected large drop in production. Exports were bearish with USDA putting corn-inspected-for-export at 21.438 mb vs. estimates for 22-24 mb. This is well below the 35.5 mb needed to stay on pace with USDA’s 1.b bb demand projection. Please see graph.

The national average basis for corn fell 1.0¢/bu to -10.0¢/bu compared to September futures. Basis in Central North Carolina was +50.0¢/bu and in Virginia -16.0¢/bu. Late Monday afternoon USDA put the US corn crop in good-to-excellent condition at 24 per cent vs. 26 per cent this time last week and 62 per cent this time last year.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The AUG’12 contract closed at $17.256/bu; up 41.5¢/bu and 27.25¢/bu over last report. NOV’12 futures closed at $434/bu; up 41.75¢/bu and 21.15¢/bu higher than a week ago. Weather and traders adding risk premiums ahead of the USDA crop progress report were supportive. Soybeans are entering a crucial pod-setting/filling stage over the next few weeks. The crop is about two-weeks ahead of the normal production cycle due to early planting and heat stress. When plants are under stress they speed up the life cycle to reproduce before it dies. The National Weather Service forecasts mostly dry weather this week for the important soybean-growing states of Iowa, Illinois, and Missouri. High temperatures are expected to reach the upper 90s in Iowa and Illinois and low 100s in Missouri. Demand remains strong as China continues to import US soybeans due to low production in South America. Additionally, domestic soybean-meal demand for animal feed remains strong. Late Monday USDA put the US soybean crop in good-to-excellent condition at 29 per cent vs. 31 per cent last week and 60 per cent this time last year. The national average basis for soybeans fell 3.0¢/bu to -36.0¢/bu compared to August futures. Basis in Central North Carolina was -83.75¢/bu and in Virginia -61.75¢/bu. Exports were bullish. USDA put soybeans-inspected-for-export at 15.498 mb vs. estimates for 12-15 mb. Inspections are 78 mb ahead of the demand curve projected by USDA’s 1.34 bb for 2012. Please see graph:

WHEAT futures in Chicago (CBOT) closed up on Monday. SEPT’12 wheat futures finished at $9.144/bu; up 16.5¢/bu and 1.75¢/bu over last report. The JULY’13 contract closed at $8.316/bu; up 1.5¢/bu and 21.25¢/bu higher than last Monday at this time. Spillover from corn and soybeans was supportive. Wheat prices are somewhat linked to these as wheat is also an animal feed. In addition, damage to wheat crops in other countries is becoming more apparent. Wheat crop damage from drought is surfacing from Australia and the Black Sea region. Too much rain is reportedly hurting wheat-crop prospects in Europe. Funds continue to be bullish on wheat as global supplies shrink. The national average basis for HRW wheat was down 1.0¢/bu to -55.0 compared to September futures. Late Monday USDA put the US wheat crop in good-to-excellent condition at 63 per cent vs. 60 per cent last week and 70 per cent this time last year. Exports are considered bearish as USDA put wheat-inspected-for-export at 18.601 mb vs. estimates for 19 - 21 mb. This is 5.199 mb short of the 23.8 mb needed to stay on pace with USDA’s 1.2 bb demand forecast.

TheCattleSite News Desk




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