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Weekly Roberts Market Report

03 August 2011

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

US - Commodities erased early gains on Monday after disappointing US manufacturing data left investors hanging on a congressional vote they hoped would rescue the US from its debt crisis. Hot dry weather continues to support price volatility, writes Michael Roberts.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up on Monday. The JULY’11DA contract finished at $21.38/cwt; even with last Friday’s close and $0.05/cwt higher than a week ago.

SEP’11DA futures finished at $20.80/cwt; up $0.13/cwt and $0.44/cwt higher than last report.

Renewed support in the grain market and expected support surrounding the debt crisis issues may discourage buying in the near term.

Block cheese prices slid slightly on stagnant sales. Butter and skim milk powder production increased dramatically over the first two quarters of 2011. USDA on Monday put total cheese (except for cottage cheese) at 894 mi lbs; 1.3 per cent more than June 2010 but 2.3 per cent lower than May 2011.

Butter production was placed at 141 mi lbs; 20.1 per cent above June 2010 but 9.5 per cent below May 2011. Cow numbers continue to decrease on heavier sales while milk/cow continues to increase.

On May 18 USDA published the following: “After a four year increase during 2005-08, milk cow numbers fell in 2009 and 2010 and are projected to continue year-to-year declines in 2012-20. Milk production is projected to continue rising in 2012-20, as continued technological and biological developments increase milk output per cow.

Cow numbers decline at lower rates toward the end of the 2012-20 projection period as the transition in most regions from smaller, diversified farms to larger, specialised dairy operations matures.

This chart appeared in the June 2011 issue of Amber Waves magazine.

The average price for Class III milk three months out = $21.23/cwt ($0.25/cwt higher than a week ago); six months out = $18.88/cwt ($0.89/cwt lower than last report); nine months out = $17.40/cwt ($1.41/cwt lower than this time last week); and 12 months out = $16.91/cwt ($1.37/cwt under last report). Expected higher grain prices and other inputs are pressuring deferred milk prices.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday on continued hot, dry conditions; a sharp drop in this week’s cattle supplies, and active export markets.

AUG’11LC futures closed at $113.30/cwt; up $0.675/cwt and $2.65/cwt higher than a week ago.

The OCT’11LC contract closed at $117.800/cwt; up $0.475/cwt and $2.900/cwt over last report.

JUNE’12LC futures closed at $123.225/cwt; up $0.625/cwt and $1.825/cwt higher than this time last week.

According to feedlot sources Nebraska cattle supply was down 25,000- 26,000 head and Kansas down 9,000-10,000 head. Texas supply was reported down an overall 4,800 head.

USDA reported on Monday that 944 loads (the second highest volume in six weeks) of beef were sold on export markets last week. This time last year exports were placed at 713 loads.

Contaminated beef in Japan continued to give hope for increased US beef exports to that country. USDA put the five area average cash price at $108.59/cwt; $0.05/cwt lower than a week ago. USDA on Friday put the beef cutout at $174.13/cwt; down $1.12/cwt and $0.75/cwt lower than last report.

According to HedgersEdge.com, the average packer margin was raised $15.20/head to a positive $47.55/head based on the average buy of $107.99/cwt vs. the average breakeven of $111.68/cwt.

FEEDER CATTLE at the CME closed up on Monday with the exception of the nearby August contract. The AUG’11FC contract finished at $136.825/cwt, down $0.225/cwt but $0.775/cwt higher than last report.

The NOV’11FC contract settled at $140.675/cwt, up $0.375/cwt and $1.700/cwt over last report.

Position squaring and rolling out of August futures into deferred months pressured the nearby contract. Higher fat cattle supported feeders despite double-digit increases in corn futures and the sorry news from equity markets.

The tropical storm Don fizzled before bringing much needed rain for Texas pastures.

The brisk pace of young stock to feedlots is expected to continue. Cash feeder prices were mostly steady-tohigher on Monday in Oklahoma City where steers were zero to two dollars /cwt higher while heifers ranged from two dollars /cwt higher to two dollars /cwt lower depending on frame and body condition.

The CME composite seven-day average price for 650-849 lb feeders for Friday was placed at $135.33/cwt; up $1.33/cwt.

The CME composite price is the official cash settlement price for CME feeder cattle futures calculated from prices reported by USDA. Estimated receipts at the Oklahoma City Auction were placed at 6,500 head vs. 8,721 head last Monday and 6,266 head a year ago. The latest CME feeder cattle index was placed at $134.00; down $0.36 and $1.90 lower than this time last week.

CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. SEPT’11 futures closed at $6.812/bu; up 15.75 ¢ /bu and 2.75 ¢ /bu higher than last Monday.

The DEC’11 contract closed at $6.856/bu; up 11.25 ¢ /bu and 11.25 ¢ /bu higher than last report. Prices appear to be in a sideways trading pattern on nervousness regarding corn yield expectations.

Buying amid position squaring and continued hot weather that could limit US corn crop development supported prices. Despite the downtrend in equities and crude oil in a violent reaction to political indecision involving the US debt problem corn futures made gains.

Continued hot weather this week is expected to continue to stress the US corn crop. Relief is expected by the weekend. Ethanol plants and livestock feeders are competing for the last of the 2010 crop driving cash corn prices higher.

Exports are viewed as neutral to bearish as USDA put corn-inspected –export at 32.02 mi bu vs. expectations for 30-35 mi bu. This is below the 47.3 mi bu needed this week to stay on pace with USDA’s 1.875 bi bu demand projection.

USDA late Monday placed the US corn crop in good-toexcellent condition at 62 per cent; the same as last week but nine per cent lower than this time last year. Volatility and price direction will remain unsettled as long as hot weather patterns continue.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up somewhat on Monday. The AUG’11 contract closed at $13.586/bu; up 4.5 ¢ /bu but 6.75 ¢ /bu lower than a week ago.

NOV’11 soybean futures closed 4.75 ¢ /bu higher at $13.620/bu but 10.0 ¢ /bu lower than a week ago.

Spillover from corn futures and hot weather supported CBOT soybeans. Soybeans remained firm but gains were limited on declining equities and crude oil prices.

Floor sources said the market is still worried about a possible downgrade in the US credit rating. Exports are considered neutral-to-bearish with USDA putting soybeans-inspected-for-export at 5.762 mi bu vs. expectations for five to ten mi bu.

Exports needed 13.3 mi bu this week to stay on USDA’s 1.52 mi bi bu demand projection. Cash soybeans were neutral-to-weaker at country elevators.

South American news shows that Buenos Aires is likely to keep its soybean planted area nearly the same as last year. Brazil’s soybean crop is expected to increase by 0.4 per cent over last year to a record 75.18 mi tonnes (2.76 bi bu). November 2011 chart signals indicate a continued sideways pattern ranging +/- $1.15/bu from $13.472/bu over the last seven months.

WHEAT futures in Chicago (CBOT) closed up on Monday. SEPT’11 futures finished 4.0 ¢ /bu higher at $6.764/bu but 12.0 ¢ /bu lower than a week ago.

The DEC’11 contract closed at $7.206/bu; up 5.0 ¢ /bu but 8.5 ¢ /bu lower than this time last week. JULY’12 wheat futures finished at $7.842/bu; up 11.2 ¢ /bu. The sharp rally near the close of corn futures supported US wheat prices.

USDA placed wheat-inspected-for-2 export at 16.16 mi bu vs. expectations for 20-25 mi bu. US wheat exports are seen as bearish as 21.9 mi bu in exports were needed to stay on pace with USDA’s projection of 1.15 bi bu for the 2011-12 marketing year.

Iran plans to export two mi tonnes (75.488 mi bu) of wheat while Ukraine’s wheat exports were placed at 4.16 mi tonnes (152.86 mi bu) in 2010-11.

So far Ukraine’s wheat yield is estimated at 3.36 tonnes (123.46 bu) per hectare; 304.9 bu/ac. Last year Ukraine averaged 2.8 tonnes (102.88 bu) per hectare or 254.22 bu/ac.

The top Asian wheat importer bought 20 per cent more wheat in June and July. Floor traders say they expect this pace will continue through August. Weather remained supportive.

TheCattleSite News Desk




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