20 June 2012

5 minute read

North America

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up on Monday with the exception of the nearby contract. The JUNE’12DA contract closed at $15.60/cwt; down $0.01/cwt. JULY’12DA futures closed at $16.42/cwt; up $0.24/cwt. The SEPT’12DA contract closed up $0.28/cwt at $17.13/cwt. Stronger prices were supported despite increasing US Milk production at 17.8 bi lbs - up 2 per cent; an increase in US dairy cow numbers 9.27 mi hd - up 76,000 vs. this time last year; and an increase in US milk per cow of 1.2 per cent from last year to 19,010 lbs. Even though May milk production grew it was the lowest so far this year. Slowing milk production is keeping supply sufficient for demand. Hot weather is seen as slowing production. Summer months bring this cycle, as well as increased monitoring of somatic cell counts in order to prepare for the upcoming goal of marketing milk less than 400,000 SCC. Dairy producers that do not meet that requirement will have time to change procedures and practices in order to meet that requirement over time. Cheese production is slowing as milk receipts decline while a jump in butter price and sales last Friday was a surprise. An increase in dairy feed costs and a decrease in the All Milk price have continued to erode milk margins. The milk margin ending April 2012 was placed at $8.105/cwt. See charts.

Class III futures were: 3 months out = $16.13/cwt; 6 months out = $16.43/cwt; 9 months out = $16.42/cwt; and 12 months out = $16.35/cwt.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished up on Monday. JUNE’12LC futures closed at $117.200/cwt; up $1.050/cwt. The AUG’12LC contract closed at $117.975/cwt; up $1.325/cwt. DEC’12LC futures closed at $125.075/cwt; up $0.875/cwt. Direct trade was mostly at a standstill on Monday amid light demand and little sales volume. There were not enough sales in any region to adequately test the market. Live cattle were supported by spillover from hogs overcoming concerns that demand will soften after July 4. Additionally, a good discount to cash prices also helped prices. Gains in the beef complex marked a reticent rebound. Futures have struggled to find direction the last few weeks on stronger-than-expected-beef demand. Wholesale prices seem to begin showing the slowing trend with USDA putting boxed beef at $197.49/lb; down $0.42/lb from Friday. Processors purchased a limited number of cattle on negotiated cash basis. According to HedgersEdge.com, the average packer margin was placed at a negative $40.60/head based on the average buy of $120.80/cwt vs. the breakeven of $123.50/cwt. Late Monday, June 18, USDA put the 5-area average price at $119.36/cwt. See graph.

Technically speaking the August ’12 contract is approaching the oversold threshold with the nine-day relative strength index now at 32 per cent. This will likely limit selling interest.

FEEDER CATTLE at the CME closed mixed on Monday with nearbys up and deferreds off. The AUG’12FC contract closed $0.100/cwt higher at $156.125/cwt. JAN’13FC futures closed at $158.900/cwt; down $0.025/cwt. Monday’s estimated receipts at the closely watched Oklahoma City market were put at 7,000 head vs. last week’s 9,269 head and 7,514 head this time last year. Feeder steers and heifers were weaker at $2-$4/cwt lower. Steer and heifer calves were steady to $3/cwt lower. Demand was considered moderate. Quality was mostly average. The CME feeder cattle livestock index was placed at 154.31; down 0.19. See chart.

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.

CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The JULY’12 contract closed at $5.994/bu; up 20.0¢/bu. The DEC’12 contract closed at $5.340/bu; up 28.0¢/bu. Weather premium and strong buying interest from both commercial and noncommercial traders were supportive. Persistent economic concerns regarding Europe’s crisis slowed bull enthusiasm. Hot weather drying up soil moisture in key corn producing areas fueled speculation prices could strengthen on shorter production projections. Exports were neutral-to-optimistic with USDA putting corn inspected for export at 24,729 mi bu vs. estimates for 15-21 mi bu. This was well below the 34.3 mi bu needed to stay on pace with USDA’s 1.65 bi bu demand projection. (See chart) Exports compared to this time last year were over 43 mi bu.

Strong cash markets reinforced gains in corn, as basis, or the difference between cash and futures prices, remained firm in spite of the rally in futures. Usually basis weakens when futures prices rally. However, that wasn’t the case on Monday reflecting low availability of supply. Corn prices continue to show price strength.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The JULY’12 contract closed at $13.842/bu; up 8.25¢/bu. NOV’12 futures closed at $13.392/bu; up 25.25¢/bu. New crop soybean contracts outpaced old-crop market supplies on weather concerns. Pit sources said they don’t think USDA’s 2012 yield forecast of 43.9 bu/ac will hold. Exports were not supportive with USDA putting soybeans-inspected-for-export at 7,897 mi bu vs. estimates for 10-16 mi bu. Inspections are running 13 per cent ahead of the total needed to stay on pace with USDA’s 1.335 bi bu.

Funds expanded net-bull positions as analysts continue to warn that supplies will tighten if hot weather persists. Funds were net-long 212,956 contracts for the week ended Tuesday, June 13, 2012. Short positions were placed at 5,984 lots. The net-long position is the difference between the number of long contracts (or bets that prices will rise) and short contracts (bets prices will fall). Funds’ net-long positions in soybeans has been large for a lot of the year on expectations that supplies will tighten after drought reduced South American soy production. Soybean prices should continue to strengthen for the next 10-14 days with some profit taking.

WHEAT futures in Chicago (CBOT) closed up on Monday. JULY’12 wheat futures finished at $6.302/bu; up 20.75¢/bu. The JULY’13 contract closed at $7.036/bu; up 15.75¢/bu. Futures were behind nearly all session until near the end when funds jumped in to buy late in the session. Lack of commercial interest held prices back amid speculative short-covering. Spillover from corn and soybeans weather concerns for wheat-crop making in China, Russia and the Ukraine were supportive. Fund managers expanded net-short positions in CBOT wheat futures to 6,367 contracts, more than double their net short of last week at 2,549 lots. USDA put wheat-inspected-for-export at 20,620 mi bu vs. estimates for 20-27 mi bu. This was 1.5 mi bu below the 22.1 mi bu needed to stay on pace with USDA’s 1.15 bi bu demand projection.