15 August 2012

5 minute read

North America

Grain futures were sharply lower with favorable growing weather, profit-taking, and short-covering weighed on prices. USDA’s World Agriculture Supply Demand Estimates (WASDE) report last Friday showed better-than-expected yields for soybeans and wheat which had spillover pressure on corn. A lower U.S. dollar was supportive. Pit sources said corn traded higher in early trading but couldn’t overcome spillover pressure from wheat and soybeans. Friday’s record high along with high volatility and no fresh news set the stage for corn futures correction on Monday. The December contract support is placed at $7.335, a price that is 33% lower than the uptrend high from the low of $4.99/bu set last May. According to USDA the U.S. corn crop in goodto-excellent condition remained the same from last report at 23% vs. 60% this time last year. The U.S. corn crop in poor-to-very-poor condition was lowered 1% to 49%. Exports were bearish-to-neutral with USDA putting corn-inspected-for-export at 22.276 mb vs. estimates for 21-23 mb. This was below the 30.2 mb needed to stay on pace with USDA’s 1.55 bb demand projection. Please see graph:

Corn basis was weaker even though USDA lowered fundamental projections for the 2012 crop. This was in reaction to lower demand from the livestock and ethanol sectors. The national average basis for cash corn was -8.0¢/bu under CBOT September futures, up 1.0 ¢ /bu. Mid-Atlantic corn basis was generally even with September futures.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed sharply lower on Monday. The AUG’12 contract closed at $16.562/bu; down 53.25 ¢ /bu but 48.75 ¢ /bu lower than last report. NOV’12 futures closed at $15.842/bu; down 44.5 ¢ /bu. Good growing weather, lower equity markets, and USDA’s latest WASDE report showed better-than-expected yields pressured prices. Soybeans started out of the gate under selling pressure on profit-taking and long-liquidation. Amid continued intense volatility the November 2012 contract could see a test of support between $15.562 and $15.222. The market is still bullish longer-term looking at the strong inverse in new-crop futures spreads. Exports were supportive with USDA putting soybeans-inspected-for-export at 15.698 mb vs. estimates for 12-15 mb. This was well above the 13.7 mb needed to stay on pace with USDA’s revised 1.35 bb demand projection. Please see chart:

Late Monday USDA put the U.S. soybean crop in good-to-excellent condition at 30% vs. 29% last week and 61% this time last year. The national average basis for soybeans was higher at +15.0 ¢ /bu vs. November 2012 futures. Good export activity and higher spot bids for loaded barges were higher. USDA cut the forecasted production for U.S. soybeans to 2.69 bb; below the average trade estimate.

WHEAT futures in Chicago (CBOT) closed lower on Monday. SEPT’12 wheat futures finished at $8.566/bu; down 28.5 ¢ /bu and 36.75 ¢ /bu lower than last report. The JULY’13 contract closed at $8.410/bu; down 11.0 ¢ /bu and 14.5 ¢ /bu lower than last Monday at this time. Momentum on speculatorlong-liquidation increased during the session on computer trading sparking a sharp sell-off. Longer-term the outlook is still bullish. Market volatility is doing nothing to help stabilize wheat prices. Exports were neutral-to-bearish with USDA putting wheat-inspected-for-export at 22.205 mb vs. estimates for 20-24 mb. This is 1.2 mb below the weekly totally needed to stay on pace with USDA’s 1.2 bb demand 3 projection. National average basis for Soft Red Winter wheat was placed at -56.0 ¢ /bu vs. September futures; Hard Red winter wheat -56.0 ¢ /bu vs. Kansas City September futures; and Hard Spring Wheat at - 83.0 ¢ /bu vs. Minneapolis September futures.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed down on Monday. AUG’12DA futures closed at $17.61/cwt; down $0.03/cwt but $0.04/cwt over last report. The SEPT’12DA contract closed down $0.42/cwt at $18.75/cwt; and $0.37/cwt lower than a week ago. DEC’12DA futures closed at $19.27/cwt; down $0.27/cwt and $0.08/cwt lower than last week at this time. Class III futures established new highs last week but fell back on Monday. Aggressive cheese buying on lower cheese production and tighter cream stocks on increased butter churning were supportive. Milk production continues below last year at this time. Cow numbers are up but heavy culling continues so production is not expected to improve. Please see chart:

Cooler weather in many milk-producing areas is driving better production. The expected start of schools across the board will use up any increase in production which is expected to tighten some supply. Class III futures were: 3 months out = $18.56/cwt ($0.19/cwt lower than last report); 6 months out = $18.89/cwt ($0.15/cwt lower than a week ago); 9 months out = $18.81/cwt ($0.07/cwt lower than last Monday); and 12 months out = $18.78/cwt ($0.01/cwt over last report). This week variable cost of production for the average North Carolina conventional dairy producer with a 23,000 lb average is $23.42/cwt; $0.14/cwt lower than last report.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished up Monday. The AUG’12LC contract closed at $121.825/cwt; up $1.225/cwt and $1.850/cwt over last report. DEC’12LC futures closed at $128.950/cwt; up $0.500/cwt and $1.825/cwt higher than this time last week. APR’13LC futures closed at $135.425/cwt; up $0.525/cwt and $1.275/cwt over last report. Strong demand, technical signals, and lower corn prices were supportive. Severe and expanding drought in the U.S and a demand drop in July pressured prices for weeks. The rebound in prices is across the supply chain. Late Monday 4 USDA put boxed-beef prices at $186.89/cwt; up $1.94/cwt and $8.40/cwt higher than last report. Cash cattle trade was quiet Monday. Packers who paid up last week are hoping futures will fall back this week and provide some relief. On Monday USDA put the 5-area weekly steer average at $119.50/cwt; $1.84/cwt over last report. Please see graph:

According to HedgersEdge.com, the average packer margin was raised $32.60/head to a positive $11.75/head based on the average buy of $118.53/cwt vs. the breakeven of $118.99/cwt.

FEEDER CATTLE at the CME finished up on Monday. The AUG’12FC contract closed $1.975/cwt higher at $141.450/cwt; $3.025/cwt over last report. NOV’12FC futures closed at $145.222/cwt; up $2.375/cwt and $2.722/cwt higher than a week ago. Feeders rallied after corn futures fell for the second day in a row. Lower feed costs ease input costs at the feed yards which buy young stock and fatten them with grain consisting mostly of corn. For Monday 8.13.12; estimated receipts at the closely watched Oklahoma City market were put at 5,100 head vs. last week’s 4,811 head and 7,162 head this time last year. Feeder steers were $3-$5 higher while feeder heifers were $1-$3 higher. Steer calves were $2-$5 higher. Heifer calves were steady to $2 higher. Demand was very good for all classes, especially steer calves. According to some sources wheat grazers are getting ready for when it ever rains and wanted to have steer calves ready to go. For Monday 8.6.12; estimated receipts at the closely watched Oklahoma City market were put at 4,550 head vs. last week’s 4,496 head and 7,672 head this time last year. Heavy feeder steers (greater than 800lbs) were $2-$4 lower while those less than 800 lbs were steady to $2 lower. Feeder heifers were $2-$3 lower. Demand was moderate despite limited numbers. Steer and heifer calves were not tested. Several cattle were reported to be consignments from ranches where pastures caught fire recently due to heat lightening. Quality was considered plain on thin cattle.

LEAN HOGS on the CME finished mixed on Monday with nearbys up and remote deferreds down. AUG’12LH futures finished $0.075/cwt higher at $91.950/cwt; $3.225/cwt higher than last Monday’s close. The August 2012 contract will expire after Tuesday’s session. The DEC’12LH contract closed at $74.950/cwt; up $1.525/cwt and $2.050/cwt over last report. Lean hog futures were primarily supported by USDA’s emergency plan to help drought stricken producers. President Obama announced Monday that his administration plans to purchase as much as $170 million of pork, chicken, lamb, and catfish in an attempt to alleviate the burden put on U.S. farmers by drought and surging grain futures. The products are to be used for food aid programs. Technical signals and near-term seasonal demand expectations were also supportive. Cash hogs were quiet on Monday but some markets reported steady-to-$1/cwt lower prices. Late Monday USDA put the lean-hog-carcass cutout price at $92.36/cwt; down $0.33/cwt and $1.89/cwt lower than a week ago. According to HedgersEdge.com, the average packer margin was raised $1.45/hd to a positive $4.15/head based on the average buy of $65.16/cwt vs. the breakeven of $66.72/cwt. The CME Lean Hog index for Monday; 8.13.12 was estimated at 92.80; down 0.49 and 1.38 lower than a week ago.

Further Reading You can view the full report by clicking here.