14 December 2012

7 minute read

North America

Risk Management Term of the Week: --- AT THE MARKET --- An order to buy or sell at the first price obtainable when the order reaches the trading floor.

Risk Management Principle of the week: Commodity futures prices are discovered within a supply demand framework. The observed variability in those prices occurs because information on the levels of supply and demand is imperfect (quantity and quality of information is not known to everyone) and is subjected to analysis with varying degrees of sophistication (user ability and experience).

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The DEC’12 contract closed at $7.266/bu; down 6.0¢/bu and 12.5¢/bu lower than last Monday. MAR’13 corn futures closed at $7.300/bu; down 7.25¢/bu and 24.75¢/bu lower than a week ago. The DEC’13 contract closed at $6.366/bu; down 1.0¢/bu and 3.0¢/bu lower than last report. Exports, lower oil prices, profit taking, and non-commercial-selling squaring positions ahead of USDA’s World Agriculture Supply Demand Estimate (WASDE) report pressured prices. A lower dollar was supportive. USDA’s WASDE report is due out at 8:00 am Tuesday morning. Exports were bearish with USDA putting corn-inspected-for-export at 7.861 mb vs. estimates for 12-17 mb. This is well below the 24.6 mb needed this week to stay on pace with USDA’s demand projection of 1.15 bb. Please see chart:

On Monday the national average basis was -10.0¢/bu under CBOT December futures.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. JAN’13 futures closed at $14.746/bu; up 2.5¢/bu and 21.0¢/bu over last report. The MAR’13 contract closed at $14.754/bu; up 153.5¢/bu and 27.25¢/bu higher than last week. NOV’13 futures closed at $13.344/bu; up 5.5¢/bu and 17.25¢/bu higher than last Monday. Uncertainty in the WASDE report, lower crude oil, and position squaring ahead of USDA’s report pressured prices but not enough to keep soybeans going up on good exports and fund buying. Exports were bullish with USDA putting soybeans-inspected-for-export at 46.632 mb vs. estimates of 45-52 mb. Even though exports just met expectations they are well ahead of the 19.1 mb needed to stay on pace with USDA’s demand projection of 1.345 bb. Please see chart:

Cash soybeans were firmer with the latest national average soybean basis being placed at -31.0¢/bu under the Chicago January 2013 futures contract.

WHEAT futures in Chicago (CBOT) closed down on Monday. DEC’12 wheat futures finished at $8.326/bu; down 11.5¢/bu and 9.5¢/bu lower than a week ago. The JULY’13 contract closed at $8.666/bu; down 7.0¢/bu and 2.0¢/bu lower than last report. A lower dollar and weather were supportive while fund selling ahead of USDA’s WASDE report weighed on prices near the close. Moderate snows and rain in the US Midwest with more in the forecast were seen as good for crop production. Exports were supportive with USDA putting wheat-inspected-for-export at 13.938 mb vs. estimates of 12-17 mb. Exports have been picking up in light of the lower US dollar. US basis is narrowing somewhat. Soft Red Winter wheat basis index was steady-to-firm at -39.0¢/bu under CBOT March futures. Hard Red Winter Wheat basis index was placed at -54.0¢/bu under Kansas City March futures. Hard Red Spring Wheat average basis index was placed at -56.0¢/bu under the Minneapolis March futures contract.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up on Monday with the exception of the April 2013 where volatility and spread unwinding contributed to lower price. The DEC’12DA futures closed at $18.51/cwt; even with last Friday’s close but $0.07/cwt lower than last week. The MAR’13DA contract closed at $18.34/cwt; up $0.04/cwt but $0.29/cwt under last report. MAY’13DA futures closed at $18.44/cwt; up $0.08/cwt. Low buying interest in cheese and butter and low volume created small price opportunities. Cheese and butter prices may have established a bottom or at least a profit-taking opportunity after the steep decline last week. Good cheese supplies are keeping buyers sidelined. Butter exports have improved with some buying for inventory. However, sellers don’t seem willing to sell lower than the current prices. Improved milk production is offsetting most of the decline in cow numbers minimizing the impact of the declining US herd. USDA is expected to lower prices somewhat for 2013 reflecting current trends. Class III futures were: 3 months out = $18.24/cwt ($1.08/cwt lower than last report); 6 months out = $18.31/cwt ($0.69/cwt lower than a week ago); 9 months out = $18.40/cwt ($0.49/cwt lower than last Monday); and 12 months out = $18.39/cwt ($0.40/cwt under last report). This week the variable cost of production for the average North Carolina conventional 200 cow dairy with a 23,000 lb average is $22.15/cwt; $0.34/cwt higher than last Monday. 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.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed down on Monday. DEC’12LC futures closed at $125.600/cwt; down $0.275/cwt and $1.400/cwt lower than last report. APR’13LC futures closed at $134.100/cwt; down $0.375/cwt and $0.750/cwt lower than a week ago. The AUG’13LC contract closed at $130.125/cwt; down $0.125/cwt and $0.625/cwt lower than a week ago. Volume was light amid fewer new showlists. Pre-report position squaring, poor export demand, and the general lack of buying interest pressured prices. Prices were also pressured on seasonal demand slack and investors not wanting to jump into bull positions ahead of the looming US fiscal cliff. Soft processing margins could further discourage buying this week. Late Monday USDA put wholesale boxed beef at $193.05; up $1.10/cwt but $2.27/cwt lower than a week ago. Cash cattle were called steady-to-$1/cwt lower. According to HedgersEdge.com, the average packer margin was raised $13.50/head to a negative $69.45/head based on the average buy of $125.42/cwt vs. the breakeven of $119.97/cwt. Monday afternoon USDA put the 5-area average at $123.81/cwt; $2.04/cwt under last report. Please see graph:

FEEDER CATTLE at the CME finished up on Monday. JAN’13FC futures closed at $149.775/cwt; up $1.000 and $4.175/cwt higher than a week ago. APR’13FC futures closed at $153.175/cwt; up $0.775/cwt and $3.350/cwt higher than last week. The AUG’13FC contract closed at $158.425/cwt; up $0.700/cwt and $1.825/cwt higher than last report. Feeders were supported by selling in the corn pits and prospects for cheaper grain. For Monday 12.10.12 estimated receipts at the closely watched Oklahoma City market were put at 8,800 head vs. last week’s 9,865 head and 10,604 head this time last year. Compared to last week feeder steers and heifers were $2.00/cwt higher. Calves were steady. Demand was moderate-to-good for calves with quality plain through attractive. The first cold spell without wet weather did little to dampen demand.

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 146.98; up 0.45 and 1.38 over last report. Please see chart:

LEAN HOGS on the CME finished mixed on Monday. The DEC’12LH contract closed at $82.150/cwt; down $0.150/cwt and $1.775/cwt lower than last report. APR’13LH futures closed at $88.950/cwt; up $0.475/cwt but $1.725/cwt lower than a week ago. The JUN’13LH contract closed at $98.400/cwt; up $0.200/cwt but $1.500/cwt under last report. Hog futures ended mostly higher Monday as traders anticipated lower demand with the cash discount. Nearby contracts were supported by the small discount to the cash market. Most other contracts were higher at the close. Pit sources said the market was over-cooked. Only a few more sessions remain for the December 2012 contract. Uncertainty over Russian talk that they may hold US pork imports down weighed on prices. Demand was slower with cash hogs mostly $1/cwt lower. Fresh pork supply seems sufficient at this time. The market is anticipated slow demand prior to the holidays as packers run on shortened weeks. Late Monday USDA put the lean pork cutout at $84.42/cwt, down $0.59/cwt and $1.34/cwt under last report. According to HedgersEdge.com, the average packer margin was lowered $1.50/head to a negative $0.90/head based on the average buy of $61.36/cwt vs. the breakeven of $61.03/cwt. The latest CME Lean Hog index was estimated at 85.74; up 0.04 and 4.22 higher than last report.

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.