8 August 2012

7 minute read

North America

The DEC’12 contract closed at $8.050/bu; down 2.5 ¢ /bu and 9.0 ¢ /bu under last report. Profit taking and better-than-expected ear filling weather were supportive. According to USDA the U.S. corn crop in good-to-excellent condition deteriorated another 1% to 23% vs. 60% this time last year. The U.S. corn crop in poor-to-very-poor condition was raised 2% to 50%. Sharply lower soybean futures spillover pressured prices. Trading volatility is expected to be slow until USDA’s World Agriculture Supply Demand Estimate (WASDE) report is released Friday morning. Considering statistical analysis of fundamentals and technical signals for U.S. corn the calculated probability that December 2012 corn futures may reach $6.523/bu within the next 4 weeks is placed at 59% vs. 70% last week that the December contract would reach $6.50/bu. The probability that corn futures will stay above $7.935/bu is now 41% vs. 30% last week that December 2012 CBOT corn futures would remain above $7.822/bu. Exports were bearish with USDA putting corn-inspected-for-export at 19.887 mb vs. estimates for 19-21 Weekly Roberts Agriculture Commodity Market Report August 7, 2012 The North Carolina Dairy Foundation2 mb. This is well below the 38.2 mb needed to stay on pace with USDA’s 1.6 bb demand projection. Please see graph:

Cash prices were under pressure for lack of buyers. US cash corn basis levels were softer on uncertainty for prices ahead of the USDA WASDE report. The national average basis for cash corn was -9.0 ¢ /bu under CBOT September futures, up 1 ¢ /bu from Friday’s basis.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The AUG’12 contract closed at $16.074/bu; down 48.75 ¢ /bu and $1.1825/bu lower than last report. NOV’12 futures closed at $15.842/bu; down 44.5 ¢ /bu. Larger-than-expected rains recently pressured soybean futures. The decline was probably overdone but pit sources said traders used news to take profits from the market. Automatic sell orders were also involved. Fundamentally even if U.S. production stabilizes global stocks remain at critical levels. Exports were bullish with USDA putting soybeans-inspected-for-export at 12.720 mb vs. estimates for 11-14 mb. Inspections are 58 mb ahead of pace to make USDA’s 1.34 bb demand projection. Please see chart.

Late Monday USDA put the U.S. soybean crop in good-to-excellent condition at 29% unchanged from last week and compared to 61% this time last year. The national average basis for soybeans remained unchanged from last Friday at +11.0 ¢ /bu vs. November 2012 futures. This was 47.0 ¢ /bu higher than last report.

WHEAT futures in Chicago (CBOT) closed up on Monday. SEPT’12 wheat futures finished at $8.932/bu; up 2.0 ¢ /bu but 21.25 ¢ /bu less than last report. The JULY’13 contract closed at $8.554/bu; up 7.25 ¢ /bu and 23.75 ¢ /bu higher than last Monday at this time. Wheat futures pared losses near the end of the session and ended slightly higher. Pit sources say that continued drought damage to wheat crops in major producing nations like Russia, Kazakhstan, Ukraine, India, Central Europe, and Australia are giving some energy to wheat prices. Russia is still considering an export ban which could further raise prices. Exports were neutral with USDA putting wheat-inspected-for-export at 20,901 mb vs. estimates for 18-22 mb. Cash basis for U.S. wheat remained soft. National average basis for Soft Red Winter wheat was placed at -29.0 ¢ /bu vs. September futures; Hard Red winter wheat -57.0 ¢ /bu vs. Kansas City September futures; and Hard Spring Wheat at -84.0 ¢ /bu vs. Minneapolis September futures.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up on Monday. AUG’12DA futures closed at $17.57/cwt; up $0.08/cwt. The SEPT’12DA contract closed up $0.35/cwt at $19.12/cwt; up $0.62/cwt from a week ago. DEC’12DA futures closed at $19.35/cwt; up $0.15/cwt. Class III futures fundamentally looked much better Monday than they did last week. Short-covering and other buying interest materialized after cheese prices increased. Futures retained the futures-to-cash premium. Milk production continues well amid drought and heat despite worries from traders. Feed prices are high and increasing due to higher transportation costs. Heavier culling on farms is the norm as producers move to survival mode. Lower feed quality is being reported across all farms as producers try to cut some costs without hurting production too much. Cheese buying interest emerged early but higher prices put a lid on enthusiasm. Butter prices followed cheese. Fresh production supported by inventory is supporting prices. Class III futures were: 3 months out = $18.75/cwt ($0.81/cwt higher than last report); 6 months out = $19.04/cwt ($0.94/cwt higher than a week ago); 9 months out = $18.89/cwt ($0.81/cwt higher than last Monday); and 12 months out = $18.77/cwt ($0.72/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 $23.56/cwt. It would be wise to consider utilizing Options to mitigate input prices. The use of Put options to establish a milk-price floor would not be a bad idea either.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished mixed Monday. The AUG’12LC contract closed at $119.975/cwt; unchanged from Friday but $0.325/cwt over last report. DEC’12LC futures closed at $127.125/cwt; off $0.150/cwt and $1.525/cwt lower than this time last week. APR’13LC futures closed at $134.150/cwt; up $0.050/cwt but $0.750/cwt under last report. Futures traded mostly higher through the session with profit taking on the close. Pit sources say they are not confident that much has changed in U.S. fundamentals. The market seems to have built in premiums for tight supplies. Some seasonal movement higher may be expected prior as retailers get ready for the Labor Day holiday. Additionally, gains in equity markets supplied ready cash for bullish traders on live cattle. Late Monday USDA put boxed-beef prices at $178.49/cwt; up $0.35/cwt and $0.86/cwt higher than last report. Cash cattle trade was slow on Monday. Packers seem to be well supplied for this week and may resume buying near the end of the week. On Monday USDA put the 5-area weekly steer average at $117.66/cwt; $3.45/cwt over last report. Please see graph:

According to HedgersEdge.com, the average packer margin was lowered $19.00/head to a negative $20.85/head based on the average buy of $116.07/cwt vs. the breakeven of $114.06/cwt.

FEEDER CATTLE at the CME finished lower on Monday. The AUG’12FC contract closed $0.525/cwt lower at $138.425/cwt but $0.175/cwt over last report. NOV’12FC futures closed at $142.500/cwt; down $0.300/cwt and $1.80/cwt lower than a week ago. Feeders stumbled late in the session on profit taking and short-covering. Gains in feed commodities weighed on prices. 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 down on Monday. AUG’12LH futures finished $0.825/cwt lower at $88.725/cwt; $5.925/cwt lower than last Monday’s close. The DEC’12LH contract closed at $72.90/cwt; down $1.050/cwt and $7.100/cwt under last report. Lean hog futures were pressured throughout the session by weaker cash bids and expectations that slaughter-ready hogs will be sufficient for packer needs. Higher feed costs had traders worried that more liquidations of breeding animals is in the near future. This will put more supply on the market in the short-run. Cash hogs were mostly steady to $1 lower. Packers reported having ample supplies for this week’s run. It was reported that several processing plants in the Mid-West with combined daily processing capacity of 50,000 head were closed for a “floating” holiday. There is seasonal pressure to bid up prices due to the upcoming Labor Day holiday.

Late Monday USDA put the lean-hog-carcass cutout price at $94.25/cwt; up $1.10/cwt. According to HedgersEdge.com, the average packer margin was raised $6.35/hd to a positive $2.70/head based on the average buy of $66.04/cwt vs. the breakeven of $67.06/cwt. The CME Lean Hog index for Monday; 8.6.12 was estimated at 94.18; down 0.65 and 1.36 lower than a week ago.

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