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Weekly Roberts Report

29 June 2011

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

US - November and December 2011 futures closed lower on expected winter export weakness. Volume was light. Butter continued to decline while Class III fluid milk showed price strength.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) finished mixed on Monday. The JUNE’11DA contract finished at $19.23/cwt; unchanged from Friday’s close but $0.08/cwt higher than a week ago. JULY’11DA futures finished at $20.35/cwt; up $0.07/cwt and $0.29/cwt higher than this time last week. November and December 2011 futures closed lower on expected winter export weakness. Volume was light. Butter continued to decline while Class III fluid milk showed price strength. Favorable weather in New Zealand is helping farmers there post stronger-than-expected production. Output for the year is expected to be up 4-5 per cent over last year resulting in stronger Oceania exports. Different factors are responsible for recent dairy price strength with exports being the main price supporting factor. While dairy solids were supportive fluid milk sales were off 1.3 per cent. Higher feed costs are expected to pressure dairy profitability in the coming months and will most likely encourage producers to liquidate more of the US. dairy herd.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed down on Monday. AUG’11LC futures closed at $111.375/cwt; down $2.125/cwt and $0.600cwt lower than last Monday. The OCT’11LC contract closed at $117.175; off $1.975/cwt and $0.325/cwt lower than a week ago. Profit taking amid short covering and a broad sell-off in commodities pressured prices. The June contract expires on Thursday. Beef sales are likely to slow this week because processors have most of the supplies they need for Independence Day. Cash markets were quiet on Monday. Exports remain strong. Year-to-date US. exports are up 33.5 per cent from this time last year. USDA on Monday put choice beef prices at $178.19/cwt; off $0.27/cwt but $5.25/cwt higher than this time last week. According to HedgersEdge.com, the average packer margin was increased $11.35/head from a week ago to a positive $46.45/head based on the average buy of $110.78/cwt vs. the average breakeven of $114.39/cwt.

FEEDER CATTLE at the CME closed down on Monday. The AUG’11FC contract finished at $137.225/cwt, down $1.375/cwt but $1.725 higher than a week ago. The NOV’11FC contract settled at $138.500/cwt, off $1.550/cwt but $1.000/cwt higher than last report. Feeders sold off after record highs last week. Lower live cattle prices were a factor as well. Cash markets were supportive. The CME composite price, a 7-day average price for 650-849 feeder steers calculated by the CME from USDA price reports for June 24 finished at $133.09/cwt; up $3.01/cwt. Volume at the Oklahoma National Stockyards in Oklahoma City, OK was placed at 12,600 head vs. 7,514 last Monday and 7,928 a year ago. Fleshier animals were preferred by buyers. The latest CME feeder cattle index was placed at $130.08; up $0.89 and $5.50over last report.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The JULY’11 contract closed at $6.606/bu; off 9.25 ¢/bu and 39.75 ¢/bu lower than a week ago. The DEC’11 contract closed at $6.266/bu; down 5.25 ¢/bu and 33.75 ¢/bu lower than this time last week. Long liquidation on global economic worries such as the second Greek debt crisis, Chinese inflation, and slow US. growth weighed on futures. Funds took money out of grain and livestock commodities cutting net bull positions in CBOT corn by 22 per cent from last week. Fundamental demand from the livestock and ethanol sectors remains strong while expensive US. corn limits exports. US. livestock producers are buying less expensive wheat to feed. USDA put corn-inspected-for-export at 28.9 mi bu vs. expectations for 30-35 mi bu. Analysts expect US. corn stocks as of June 1 to be 3.302 bu, the smallest on record since 2004. Looks like prices most likely have topped amid continued downward pressure. Expect corn markets to remain extremely sensitive to acreage reports and weather reports.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday. The JULY’11 contract closed at $13.296/bu; up 9.5 ¢/bu but 6.0 ¢ /bu lower than last report. NOV’11 soybean futures closed 5.75 ¢/bu higher at $13.150/bu but 20.5 ¢/bu lower than last report. Soybean futures went up despite negative outside market influences on old-crop export sales to China. Short covering, buying on chart signals, and strong exports were supportive. USDA put soybeans-inspected-for-export at 8.732 mi bu vs. expectations for 6-8 mi bu. China was a major buyer of US. soybeans. Soy prices in Rosario, Argentina ended up on stronger local demand. Soybean prices will most likely be tested by the next USDA report.

WHEAT futures in Chicago (CBOT) closed down on Monday. JULY’11 futures finished 13.0 /bu lower at $6.226/bu and 36.75 ¢/bu lower than last report. The DEC’12 contract closed at $6.956/bu; off 9.75 ¢/bu and 49.75 ¢/bu lower than this time a week ago. Global economic weakness is limiting demand and encouraging long liquidation by large funds. Additionally, European wheat prices were sharply lower on concerns about economic woes. They are withdrawing liquidity from the market. US. wheat stocks are expected to be down as much as 15 per cent in the next USDA report. USDA put wheat-inspected-for-export at 20.61 mi bu vs. estimates for 20-23 mi bu. Funds increased net bear position in CBOT wheat. As expected, wheat prices have continued to weaken.

LEAN HOGS on the CME closed down on Monday. The JULY’11LH contract closed at $94.150/cwt; down $1.850/cwt and $3.40/cwt lower than a week ago. AUG’11LH futures closed at $92.350/cwt; down $2.850/cwt and $4.325/cwt lower than last report. Profit taking and a weaker global economy pressured prices. Wholesale beef and pork prices have weakened amid slowing demand. Processors look to have most of their needs already filled for the upcoming holiday. USDA on Friday raised hogs on US. farms as of June 1 0.6 per cent vs. expectations for a 0.2 per cent increase. USDA put the pork cutout at $99.06/cwt; down $0.21/cwt but $3.29/cwt higher than last report. According to HedgersEdge.com, the average packer margin was lowered $3.50/head to a negative $8.25/head based on the average buy of $74.50/cwt vs. the average breakeven of $71.43/cwt. The latest CME lean hog index was placed at $100.98; up $1.82 and $7.30 higher than this time last week.

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