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Weekly Roberts Market Report

22 August 2012

Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University

US - Corn futures on the Chicago Board of Trade (CBOT) closed mixed on quite trading Monday. The SEPT’12 contract closed at $8.152/bu; up 16.75 ¢/bu and 32.75 ¢/bu higher than last Monday’s close. The DEC’12 contract closed at $8.236/bu; up 16.5 ¢/bu and 31.5 ¢/bu over last report, writes Michael T. Roberts.

Poor yield data coming from the Pro-Farmer Midwest crop tour, possible crop-threatening weather in China, and speculative fund buying were supportive. The worst U.S. drought in decades has devastated the country’s corn crop. Many fields are coming in below the 100 bu/ac level with most below USDA’s 123 bu/ac level. Exports were steady-to-bearish with USDA putting corn-inspected-for-export at 21.515 mb vs. estimates of 16-22 mb. This is well below the 32.7 mb needed this week to stay on pace with USDA’s demand projection. U.S. weather is past the point of hurting corn production much. However, it coulld affect final cob filling. USDA expects the smallest harvest in years. Pit sources say they have shifted their focus from the size of the U.S. corn crop to how high prices will go before livestock farmers, ethanol producers, and foreign buyers will quit buying it. There was no fundamental news over the weekend. Traders are now focusing Weekly Roberts Agriculture Commodity Market Report August 21, 2012 The North Carolina Dairy Foundation2 on the Pro-Farmer tour results. The cash corn market was firm amid reports of corn moving south on barges. 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 -5.0 ¢ /bu under CBOT September futures, up 1.0 ¢ /bu.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The SEPT’12 contract closed at $17.036/bu; up 32.75 ¢ /bu but 48.75 ¢ /bu. NOV’12 futures closed at $16.834/bu; up 37.75 ¢ /bu and 99.25 ¢ /bu over last report. Chart signals, lower preliminary yield data from the Pro-Farmer tour, and speculative buying were supportive. Pod counts from the Pro-Farmer Crop tour are running well behind last year leading to the idea that USDA’s national yield may be overstated. Weather may be breaking and if so August rains may yet fill out pods. Exports were bullish with USDA putting soybeans-inspected-forexport at 21.426 mb vs. estimates for 13-17 mb and well above the 13 mb needed to stay on pace with USDA’s 1.35 bb demand projection. Pit sources say users are worried more now than before over supplies in this time preceding the South American harvest. U.S. soybean inventories are projected to shrink very tight as traders shift their focus from production potential to the price rationing. The national average basis for soybeans was higher at +18.0 ¢ /bu vs. November 2012 futures. Strong demand from crushers and end users for soybeans continues to be strong.

WHEAT futures in Chicago (CBOT) closed up on Monday. SEPT’12 wheat futures finished at $8.794/bu; up 5.0 ¢ /bu and 22.75 ¢ /bu higher than last report. The JULY’13 contract closed at $8.536/bu; up 11.25 ¢ /bu and 12.75 ¢ /bu higher than last Monday at this time. Spillover strength from corn and soybeans, concerns over shrinking global supplies, and bullish speculative buying were supportive. Crop estimates in Kazakhstan, Russia, and Ukraine were lowered again Monday. Exports were neutral with USDA putting wheat-inspected-for-export at 22.424 mb vs. estimates for 17-23 mb; slightly below the 24 mb needed to stay on pace with USDA’s 1.2 bb demand projection. The French harvest in France is coming to a close with “deceiving yields” in the northern regions and traders will now focus on the Australian production potential amid dry conditions there. National average basis for Soft Red Winter wheat was placed at -29.0 ¢ /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. Spring wheat harvest is coming to a close in North Dakota with continued reports good quality and yield.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed mixed on Monday with nearbys down and deferreds up. AUG’12DA futures closed at $17.65/cwt; down $0.01/cwt but $0.04/cwt over last report. The SEPT’12DA contract closed down $0.52/cwt at $19.05/cwt; but $0.30/cwt higher than a week ago. DEC’12DA futures closed at $19.87/cwt; down $0.21/cwt but $0.50/cwt higher than last week at this time. Dairy markets were mostly higher on reports of very tight cash markets showing no real selling interest amid good bidding on price breaks. Cheese remains the most actively traded. Technically charts show short-term up trends as producers continue to cull milking animals. The wide spread drought has placed uncertainty over the level of milk production and prices for the remainder of 2013. Feed prices and availability will be a major factor in what happens to cow numbers and milk production. A slowdown in dairy production and tighter dairy stocks should be positive for milk prices. Milk prices could reach $20/cwt but will depend heavily on milk production. Class III futures were: 3 months out = $19.86/cwt ($1.30/cwt higher than last report); 6 months out = $19.30/cwt ($0.41/cwt higher than a week ago); 9 months out = $18.87/cwt ($0.06/cwt higher than last Monday); and 12 months out = $18.80/cwt3 ($0.02/cwt over last report). This week variable cost of production for the average North Carolina conventional dairy producer with a 22,500 lb average is $23.73/cwt; $0.31/cwt higher than last report.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished up Monday. The AUG’12LC contract closed at $121.350/cwt; up $0.275/cwt but $0.475/cwt under last report. DEC’12LC futures closed at $128.275/cwt; up $0.525/cwt but $0.685/cwt lower than this time last week. APR’13LC futures closed at $135.700/cwt; up $0.550/cwt and $0.275/cwt over last report. Fat cattle were supported by gains in prices for cash cattle and beef supplies as processors fill orders for Labor Day and the fall grilling season. The Plains and Midwest cash cattle markets were quiet with no bids expected to be established until around noon on Tuesday. Late Monday USDA put boxed-beef prices at $193.85/cwt; up $6.96/cwt from last report. On Monday USDA put the 5-area weekly steer average at $120.52/cwt; $1.02/cwt over last report. Please see graph:

According to HedgersEdge.com, the average packer margin was raised $38.20/head to a positive $49.95/head based on the average buy of $119.55/cwt vs. the breakeven of $122.92/cwt.

FEEDER CATTLE at the CME finished up on Monday. The AUG’12FC contract closed $0.125/cwt higher at $140.550/cwt; $0.900/cwt lower than last report. NOV’12FC futures closed at $144.950/cwt; up $0.550/cwt but $0.272/cwt lower than a week ago. Feeders rallied on spillover strength from live cattle and speculative buying. For Monday 8.20.12; estimated receipts at the closely watched Oklahoma City market were put at 6,800 head vs. last week’s 4,751 head and 6,057 head this time last year. Feeder steers were $3-$5 lower while feeder heifers were $2 higher. Steer and heifer calves were steady. Demand was very steady for all classes except steer calves which was considered good-to-very -good. The CME feeder cattle livestock index was placed at 139.68; up 0.85 and 0.79 higher than last report. Please see chart:

LEAN HOGS on the CME finished mixed on Monday. OCT’12LH futures finished $0.300/cwt lower at $75.900/cwt. The DEC’12LH contract closed at $73.60/cwt; even with last Friday’s close but and $1.350/cwt over last report. Trading volume was amid fears of seasonal supply expansion made worse by drought and high feed costs. Many contracts were flat. Technicals were supportive. Higher grain prices loomed over the market. The broad rise in grain prices driven by crop damage by the massive U.S. drought has put substantial pressure on hog producers with some trimming herds. High feed costs and expectations that large numbers of producers don’t have hedge positions indicate that a significant amount of money this fall and winter are likely to push many to keep selling off the herd over what they normally would retain for breeding. Cash hogs were steady to $1/cwt lower. The recent spell of milder weather has 5 expanded offerings. Late Monday USDA put the lean-hog-carcass cutout price at $91.65/cwt; up $0.46/cwt but $0.71/cwt lower than a week ago. According to HedgersEdge.com, the average packer margin was raised $1.10/hd to a positive $5.25/head based on the average buy of $63.62/cwt vs. the breakeven of $65.61/cwt. The CME Lean Hog index for Monday; 8.20.12 was estimated at 90.37; down 0.66 and 2.43 lower than a week ago.

Further Reading

You can view the full report and tables by clicking here.

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