19 July 2012

7 minute read

North America

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up on Monday with the exception of the July and August contracts. JULY’12DA futures closed at $16.72/cwt; down $0.01/cwt but $0.12/cwt higher than last Monday’s close. The SEPT’12DA contract closed up $0.32/cwt at $19.20/cwt and $1.30/cwt higher than last report. Momentum in futures is not slowing down with new highs being made day after day. Both excitement and concern seem to be building as crop conditions deteriorate and grain prices increase. Lower US grain production is expected to have some impact on world grain prices, which in turn will affect world dairy production to some extent. If cheese trading shows strength in the near future several pit sources expect Class III prices to move higher. Butter supply seems to be a limiting factor. CWT accepted 7 bids for export assistance. On a milk equivalent butter fat basis they are helping export 1.812 bi lbs or the equivalent annual production from 86,200 cows. Options trading has picked up with put buying increasing more than call selling. This indicates farms might be working to establish a minimum milk price for next year. Most of the puts ranged from $15.75-$17.00/cwt. Class III futures were: 3 months out = $18.04/cwt ($0.68/cwt over last Monday); 6 months out = $18.40/cwt ($0.86/cwt over last report); 9 months out = $18.34/cwt ($0.90/cwt over last Monday’s close); and 12 months out = $18.20/cwt ($0.85/cwt higher than last report). It would be wise to buy feed hand-to-mouth while establishing a price floor under milk production three months out.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mixed on Monday showing price pressure on 2012 cattle but good expectations for spring 2013. The AUG’12LC contract closed at $116.800/cwt; down $0.400/cwt and $2.226505/cwt lower than last report. DEC’12LC futures closed at $124.500/cwt; down $0.40/cwt and $3.00/cwt lower than this time last week. APR’13LC futures closed $129.550/cwt; up $0.450/cwt. Hot weather limiting gains and high grain prices (also limiting gains) are pressuring nearby prices. Cattle futures have lost over 3 per cent since July 1. Grilling demand is also off as consumers aren’t going out to cook over a hot grill in the sweltering heat. USDA put boxed beef at $183.84/cwt; off $0.10/cwt from Friday; down $6.67/cwt from last report, and off $11.45/cwt from two weeks ago! Depressed demand for fresh supplies has also affected processor profits. Cattle processors make money by collecting the spread between costs for slaughter-ready animals and revenues from beef sales. Beef sales have been low due to the heat. This has affected cash prices for live cattle all the way down the line. USDA put the 5-area average cash price at $114.71/cwt; $2.33/cwt lower than last Monday. Please see chart:

According to HedgersEdge.com, the average packer margin was lowered $52.85/head from last week to a negative $6.30/head based on the average buy of $116.55/cwt vs. the breakeven of $115.90/cwt.

FEEDER CATTLE at the CME closed limit down on Monday. Higher trading limits will go into effect on Tuesday, July 17. The AUG’12FC contract closed $3.000/cwt lower at $136.000/cwt and $8.275/cwt lower than last report. NOV’12FC futures closed at $142.550/cwt; down $3.00/cwt and $8.80/cwt lower than a week ago. Feeders continue to face the worst livestock commodity losses as a result of the terrible heat wave that is damaging the nation’s crops and scorching pastures forcing farmers to sell stressed animals to a marketing chain that doesn’t want them. Feeders have been falling in direct correlation with the spike in corn futures because newly purchased young cattle will spend months eating pricey corn in feed lots. For Monday 7.16.12; estimated receipts at the closely watched Oklahoma City market were put at 7,800 head vs. last week’s 6,658 head and 12,661 head this time last year. Feeder steers and steer calves were $6-$8/cwt lower. Feeder heifers and heifer calves were $6-10/cwt lower. Demand was considered light for all classes. Feeders that had lots of flesh on them brought the best money.

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 146.61 … 140.54; down 3.17 and 6.07 lower than last report. See chart:

CORN futures on the Chicago Board of Trade (CBOT) finished higher on Monday. The SEPT’12 contract closed at $7.766/bu; up 36.25¢/bu. The DEC’12 contract closed at $7.724/bu; up 32.25¢/bu and 42.0¢/bu over last Monday’s close. Hot weather lowering expected production and deteriorating crop conditions are supportive. This year is now being compared meteorologically to 1988. The USDA World Agriculture Supply Demand Estimate (WASDE) report drastically reduced corn production by 1.8 bb. The US drought of 1988 was one of the worst in US history. It caused over $60 billion in damage. It was one of the worst airborne-dust events since 1977 or the 1930s. It closed schools in South Dakota in late February of 1988. Many records were set, e.g. 55 consecutive days without rain in Milwaukee and two record-setting heat waves occurred just as they did in 1934 and 1936. Let’s hope this doesn’t continue. Late Monday USDA published its Crop Progress report showing 71 per cent of the US corn crop has silked vs. the 36 per cent five-year average and 50 per cent last week. USDA put the US corn crop in good-to-excellent condition at 31 per cent vs. 40 per cent last week and 66 per cent this time last year. Field reports are showing corn in many places now being chopped for silage due to the lack of expected production. Chart signals indicating strengthening inverses in the forward curve of futures spreads reflect a mounting bullish commercial outlook long-term. Exports were bullish with USDA putting corn-inspected-for-export at 21.732 mb vs. estimates for 8-19 mb. This was well below the 32 mb needed this week to stay on pace with USDA’s export demand projections. Please see chart.

Cash corn basis was down 2.0-4.0¢/bu over the nearby contract. The national average was +30.0¢/bu over futures. Basis in the Mid-Atlantic ranged from +10.0¢/bu in Virginia to +42.0¢/bu in Central North Carolina. It sure would be wise to consider pricing more of the 2012-13 crop if you think you can produce it.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The AUG’12 contract closed at $16.336/bu; up 39.0¢/bu. NOV’12 futures closed at $15.904/bu; up 38.0¢/bu and 42.75¢/bu over last report. The heat wave is fueling speculation. Yield projections for US soybeans last week were lowered 3.4 bu from the June USDA WASDE report to 40.5 bu/ac. US ending stocks for soybeans last week were lowered 10 mi bu. South America’s soybean crop is decimated and many are now predicting that the US soybean yield will be even lower than the USDA’s projection. Demand is yet to slow. The national average soybean basis was 30.0¢/bu under August 2012 futures with basis ranging from -35.0¢/bu in central North Carolina to +20.0¢/bu in Virginia. Exports were neutral with USDA putting soybeans-inspected-for-export at 14.271 mb vs. estimates for 13-20 mb. This was above the 13.1 mb needed to stay on pace with USDA’s demand projections. Please see chart:

USDA put the US soybean crop in good-to-excellent condition at 34 per cent; down from 40 per cent last week and 54 per cent this time last year.

WHEAT futures in Chicago (CBOT) closed up on Monday. SEPT’12 wheat futures finished at $8.844/bu; up 36.75¢/bu. The JULY’13 contract closed at $8.410/bu; up 10.75¢/bu and 10.0¢/bu over this time last week. USDA reduced all-wheat ending stock estimates by 30 mb from the June estimate. Stocks-to-use-ratios were projected lower for corn, soybeans, and wheat in both the US and the World. Heat and increased demand were supportive. Some contracts traded to $9.00/bu before settling back on the close. Lower production news from the Ukraine, Russia, and India regarding short crops and increased feed demand over USDA projections were very supportive. Exports are considered neutral with USDA putting wheat-inspected-for-export at 14.913 mb vs. estimates for 12-19 mb. The national average basis for HRW wheat was steady at -52.0¢/bu from the nearby contract while basis in the Mid-Atlantic ranged from +10.0-+20.0¢/bu over. USDA put the 2012 winter wheat harvest 80 per cent complete vs. 65 per cent for the five-year average. Additionally, USDA put the US Spring wheat in good-to-excellent condition at 65 per cent vs. 66 per cent last week and 73 per cent this time last year.