Weekly Roberts Market Report11 January 2013
Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University
US - Sources in Chicago said the pit was sluggish as corn traders waited on the Friday release of USDA’s World Agriculture Supply and Demand Estimates (WASDE) report, writes Michael T. Roberts.
- Grain outlook – Elizabeth City - 15 January. Contact Al Woods at (252) 338-3954 for details.
- Dairy meeting - February 26 - Iredell County Extension Center.
- Time - 10:00 am – 2:30 pm.
- $5.00 pre-registration or $10.00 at the door (for lunch planning).
- Topics include:
- A) Explaining in laymen’s terms Dairy Livestock Gross Margin Insurance by Dr. David Anderson from Texas A&M University
- B) the Latest look at the farm bill re: dairy by Dr. Scott Brown from the University of Missouri
- C) Grain and Dairy Outlook by … well me.
- Call 704-873-0507 to register or email me for brochure. You must register for lunch.
- Grain outlook - New Bern - February 8. Contact Mike Carroll at (252) 448-9621 for details.
Note: If you would like a meeting in your area please contact me to see how we can work that out. As always I am available for risk management consultation as needed. See contact information below.
Risk Management Term of the Week: --- Bull Spread – An option strategy in using either Calls or Puts where the lower strike price is purchased and the higher strike price is sold. Both options have the same expiration date.
Risk Management Principle of the week: The “Bull Spread” strategy in which maximum profit is gained if the underlying security rises in price. This is a risky strategy that is often used by momentum traders. Momentum traders are watching and measuring the volume and Relative Strength Indexes looking for a slowing or quickening of volatility. A bull spreader would place a stop order above the resistance level to buy an option. One makes a lot of money if the stock price rises but also loses a lot if it doesn’t. It’s one of those higher risk maneuvers that can cause a lot of anxiety.
CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. MAR’13 corn futures closed at $6.854/bu; up 5.25¢/bu. The DEC’13 contract closed at $5.744/bu; up 2.75¢/bu. Corn trading was slow amid spillover support from soybeans. Some commercial buying was noted in bull spreading late in the session. Sources in Chicago said the pit was sluggish as traders waited on the Friday release of USDA’s World Agriculture Supply and Demand Estimates (WASDE) report. The corn market has seen a limit move up the last six years following the January report, closing at the limit five of those last six. Corn exports are considered bearish with USDA putting corn-inspected-for-export at 7.171 mb vs. estimates for 8-14 mb. This was well below the 25.6 mb needed this week to stay on pace with USDA’s demand projections of 1.15 bb. For January 3, 2012, US corn exports are 54.8 per cent lower than this time last year. Please see chart:
On Monday the national average basis narrowed from last week to -4.0¢/bu under CBOT March futures.
SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. JAN’13 futures closed at $14.106/bu; up 21.75¢/bu. The MAR’13 contract closed at $13.884/bu; up 21.25¢/bu. NOV’13 futures closed at $12.846/bu; up 7.75¢/bu. Commercial traders were most active with the rally starting in overnight electronic trading. Pit sources said they expect merchandisers are getting ready for another solid round of exports. Exports were supportive and bullish. Exports through December 27, 2012 are 35.9 per cent ahead last year at this time. USDA put soybeans-inspected-for-export at 39.652 mb vs. estimates of 38-45 mb. This was well above the 16.3 mb bushels needed to stay on pace with USDA’s 1.345 bb demand projection. Please see chart.
Cash soybean basis remained steady with the latest national average soybean basis being placed at -16.0¢/bu under the Chicago March 2013 futures contract.
WHEAT futures in Chicago (CBOT) closed up on Monday. MAR’13 wheat futures finished at $7.512/bu; up 4.0¢/bu. The JULY’13 contract closed at $7.676/bu; up 4.5¢/bu. Wheat futures were mostly unchanged until just before the close. Exports remain sluggish with continued problems on the low water levels of the Mississippi. Some support came from a lower US dollar. Exports are viewed as bearish. Year-to-date wheat exports for December 20 were put at 528.475 mb; 13 per cent behind this time last year. USDA put wheat-inspected-for-export at 13.363 mb vs. estimates for 9-15 mb. This is well behind the 20.19 mb needed to stay on pace with USDA’s demand projection of 1.050 bb. Basis levels for wheat were steady-to-firm. The Soft Red Winter wheat basis index was placed at -26.0¢/bu under CBOT March futures; 5.0¢/bu better than last report. Hard Red Winter Wheat basis index was placed at -46.0¢/bu under Kansas City March futures; 6.0¢/bu cents over last report. Hard Red Spring Wheat average basis index was placed at -50.0¢/bu under the Minneapolis March futures contract; 3.0¢/bu better than last week at this time.
DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed down on Monday. The JAN’13DA futures closed at $17.97/cwt, off $0.06/cwt. The MAR’13DA contract closed at $18.35/cwt; down $0.06/cwt. MAY’13DA futures closed at $18.39/cwt; down $0.07/cwt. Chart signals inform a sideways trend in the near term. School demand has picked back up and processors are moving milk again. Heavily discounted milk has disappeared. Commercial disappearance of fluid milk products declined 1.8 per cent for the first 10 months of the year. Congress averted the “Milk Fiscal Cliff” by extending portions of the farm bill pertaining to dairy programs. Cheese prices lack price direction with some block/barrel spreading noted. Football playoff parties are being attributed to increased cheese demand. Go Texas Aggies! Couldn’t help it. Cheese disappearance for the first 10 months of 2012 increased 2 per cent over this time last year. Butter prices are near contract and seasonal lows even though commercial disappearance increased 4.8 per cent from January 2012 – November 2012 compared to the same time in 2011. Milk prices look to strengthen over the next 8 months. Class III futures were: 3 months out = $18.12/cwt; 6 months out = $18.27/cwt; 9 months out = $18.39/cwt; and 12 months out = $18.34/cwt. This week the variable cost of production for the average North Carolina conventional 200 cow dairy with a 23,000 lb average is $21.94/cwt. The price sensitivity table below illustrates different returns/cow relative to varying increases and decreases to both milk prices and inputs costs over total Variable Costs for the same NC farm. Note – milk prices are down since last report reducing the green amount in this table.
LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed mixed on Monday. FEB’13LC futures closed at $133.000/cwt; up $0.050/cwt. APR’13LC futures closed at $136.575/cwt; down $0.075/cwt. The AUG’13LC contract closed at $131.775/cwt; up $0.025/cwt. April and June contracts were pressured by thinking that cattle now in lots will be coming off for sale in good numbers. Some short-covering was noted while funds took some profits from the market. Uncertainty continues regarding near-term domestic demand and slacking export markets. Prices are expected to rebound on continued lower grains and thoughts that winter weather will limit show lists in the near-term. Some cattle sales were reported at $1.28/lb on a live basis late last week. This is near the all-time cash-market record of $1.30/lb. Monday afternoon USDA put the 5-area average at $128.12/cwt. Please see graph:
There is market concern that consumer demand for beef at these higher prices will wane and erode packer margins even further. Late Monday USDA put wholesale boxed beef at $193.49; down $0.77/cwt. According to HedgersEdge.com, the average packer margin was lowered $5.30/head to a negative $55.40/head based on the average buy of $127.04/cwt vs. the breakeven of $122.64/cwt.
FEEDER CATTLE at the CME finished up on Monday. JAN’13FC futures closed at $153.250/cwt; up $0.075. APR’13FC futures closed at $157.925/cwt; up $0.050/cwt. The AUG’13FC contract closed at $164.000/cwt; up $0.225/cwt. Feeders finished higher amid weakness in corn futures. Lower corn prices translate to better profit margins if sales prices don’t move lower as well. Commercial feeder buyers remain wary of winter weather that hasn’t been too bad so far into 2013. In severely cold weather feeder cattle don’t put gain as well as they must use feed intake for calories to stay warm. For Monday 01.07.13 estimated receipts at the closely watched Oklahoma City market were put at 10,700 head vs. 10,965 head this time last year. The auction was closed last week for the holiday. Compared to two weeks ago feeder steers were $2-$5/cwt higher with heifers $2-$3 higher. Steer calves were $6-$10/cwt higher; heifer calves $4-$6/cwt higher. Demand was considered very good for all classes. Quality was average to attractive with several cattle coming off short wheat.
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 150.32; up 0.74. Please see chart:
LEAN HOGS on the CME finished mixed on Monday. The FEB’13LH contract closed at $86.300/cwt; up $0.075/cwt. APR’13LH futures closed at $89.550/cwt; down $0.300/cwt. The JUN’13LH contract closed at $98.550/cwt; down $0.200/cwt. Sluggish cash markets, short-covering, and seasonal trends weighed on prices. Traders watching low processing numbers sold hogs on weak demand signals from consumers after the holidays and steady processor freezer numbers after the holidays when one would expect freezers to be low on shortened work weeks. Pit sources say they are concerned for pork demand and weak performance of cash-hog traders. For Monday 01.07.2013 USDA put last week’s hog slaughter at 432,000 head vs. 357,000 the previous week and 428,000 head a year ago. Higher beef prices were supportive as an expected shift in consumer demand to pork may be expected. Late Monday USDA put the lean pork cutout at $83.68/cwt, up $0.22/cwt. According to HedgersEdge.com, the average packer margin was lowered $3.80/head from last report to a negative $5.70/head based on the average buy of $61.96/cwt vs. the breakeven of $59.89/cwt. The CME two-day lean hog index, calculated using USDA market data, for Friday was up 0.49 cent at 83.53 cents a pound.
This table shows the maximum price a producer could pay for feeder pigs 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.