16 February 2011

8 minute read

North America

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) were up on Monday with the exception of the February and March contracts. The MAR’11DA contract finished at $18.73/cwt; down $0.05/cwt but $2.17/cwt over last report. JULY’11DA futures finished at $17.63/cwt; up $0.38/cwt and $0.58/cwt higher than last week at this time. Milk futures continued to make new highs. Blocks were bid higher while spot butter was offered lower for the second session in a row with no takers. US exports in 2010 reached 847 mi lbs; up 55 per cent from 2009. For the week ended February 11 CWT accepted bids to provide export bonuses on 3.6 mi lbs of cheese. Fundamentally rising dairy commodity prices indicate both higher milk prices and rising costs. Recently all prices for milk look very good for producers. The full line of commodities are much higher than expected and look like more of the same is forecast at least through mid-year. Reasons for this better outlook include real and perceived product shortages caused by adverse global weather conditions, unexpected demand increase in Africa and Asia, and currency valuations that make US commodities competitive (lower US dollar value). The current trend for US milk prices looks bullish at this time for the next 6 – 12 months. However, if milk prices continue cyclical trends lower prices will happen again. Many analysts view this cyclical trend in milk prices as a natural result from low marginal costs for additional production being covered by pool-wide average prices (milk pooling). USDA raised its milk production forecast for 2011 to 196.1 bi lbs, up from last month’s projection of 195.5 bi lbs. Milk production for 2010 was estimated at 192.7 bi lbs, down 100 mi lbs from last month’s estimate. The increase was based on higher-than-expected January 1 dairy cow and dairy replacement heifer estimates. USDA also raised Class III milk price to $15.80/cwt - $16.50/cwt from $14.35/cwt - $15.15/cwt and Class VI milk price from $16.70/cwt - $17.50/cwt from $14.90/cwt - $15.80/cwt forecasts a month ago because of higher product prices. The all-milk price is forecast to average $17.70/cwt - $18.40/cwt for 2011.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished up on Monday. The FEB’11LC contract closed up $1.425/cwt at $109.200/cwt and $1.475/cwt higher than last report. The APR’11LC contract closed at $113.875/cwt, up $1.175/cwt and $2.125/cwt higher than last Monday. AUG’11LC futures closed at $116.625/cwt; up $1.150/cwt and $2.850/cwt over this time last week. Cash cattle in Texas traded at $107/cwt in mostly steady-to-firm bid and ask sessions. USDA put the 5-area average at $105.26/cwt; $0.63/cwt lower than this time last week as processor lines filled up due to better hauling weather. Monday USDA put the choice beef cutout at $167.77/cwt; up $0.11/cwt but $2.29/cwt lower than a week ago. Open interest declined 4,603 contracts on short-covering to 348,457 lots. According to HedgersEdge.com, the average packer margin was lowered $28.70/hd to a positive $8.20/head based on the average buy of $105.99/cwt vs. the average breakeven of $106.61/cwt.

FEEDER CATTLE at the CME closed up on Monday. The MAR’11FC contracts finished up $2.350/cwt at $128.375/cwt and $3.800/cwt higher than last report. APR’11FC futures finished at $129.875/cwt; up $2.100/cwt and $3.375/cwt higher than this time last week. The AUG’11FC contract settled at $130.950/cwt, up $1.550/cwt and $2.550/cwt over last report. Feeders moved higher on increased cash trading amid good hauling weather. Cattle sold higher in firm demand at Oklahoma City on Monday due to the auction’s closing last week in a snow storm. What a difference a week makes. High corn prices kept feeders from going higher. Estimated receipts on Monday, February 14, at the Oklahoma City market were placed at 5200 head vs. 0 head last week and 9741 this time last year. Compared to two weeks ago feeder steers and heifers opened $3-$6/cwt higher. Demand was considered extremely good. The CME feeder cattle index was placed at 126.52 ¢/lb; up 0.25 ¢/lb from Friday and 1.14 ¢/lb higher than a week ago.

CORN futures on the Chicago Board of Trade (CBOT) finished down on Monday. The MAR’11 contract closed at $6.956; off 10.75 ¢/bu but 21.0 ¢/bu higher than last week at this time. The DEC’11 contract closed at $6.074; down 10.75 ¢ /bu but 5.5 ¢/bu over last report. Corn futures supported by a bearish forecast were pressured by profit taking after reaching highs not seen since July 2008. Funds sold over 10,000 lots. Several sources on the floor said it was too early to think this was a true reaction to any forecasts. USDA on Monday said US farmers intend to plant 92.0 mi acres in 2011; up 4.2 mi acres from 2010 and raising the anticipated US corn crop to 13.755 bi bu from the 2010 crop of 12.477 bi bu. Exports were not supportive with USDA putting corn-inspected-for-export at 26.149 mi bu vs. expectations for 28-30 mi bu. Exporters sold 145,000 tonnes (5.71 mi bu) of US corn for 2011 delivery. Indonesia announced it may need 2 mi tonnes (78.7 mi bu) of corn. Good corn-crop weather in Argentina and Brazil has raised the corn crop rating in both countries to satisfactory condition. Cash corn basis was steady-to-firm amid slow farmer selling. Fundamentally, long-term supplies will remain tight with Mexico recently reporting heavy freeze damage to its crop and booking more purchases of US corn on Monday. USDA said merchandisers have sold 355,000 tonnes (13.98 mi bu) in recent days. Mexico’s Agriculture Ministry stated they expect imports to rise 50 per cent for 2011-12. The head of the National Association of Farm Trading Businesses said today that Mexico is experiencing the worst food disaster in 80 years. Floor sources are wary of signs for slowing US exports amid these high prices. Another demand factor is record-high ethanol production draining corn supplies.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished lower on Monday. The MAR’11 contract closed at $14.026/bu; down 13.25 ¢/bu and 28.75 ¢/bu lower than last report. NOV’11 soybean futures closed off 14.0 ¢/bu at $13.654/bu and 0.75 ¢ /bu lower than last Monday at this time. Prices were weighed down by profit-taking, long liquidation of bull spreads, prospects for good crop weather, and a bearish acreage forecast. USDA put soybeans-inspected-for-export at 33.823 mi bu vs. expectations for 30-35 mi bu. Funds sold over 6,000 lots. As with corn, floor sources said it was too early to react to an acreage forecast. On Monday USDA put 2011 US soybean planting intentions at 78.0 mi acres, up 0.6 mi acres from the 77.4 planted in 2010. The increased planting expectations are expected to produce a 3.355 bi bu crop vs. the 3.329 bi bu crop produced in 2010. Reports out today said 9 per cent of Brazil’s estimated record 69.8 mi tonne (2.56 bi bu) crop had been harvested as of Feb. 11. The Argentinean crop is in good shape. Cash soybean basis was steady-to-firm. Fundamentally the absence of South American production threats and signals from China that import demand will shift to South America from expensive US soybeans pressured futures. Technically the market was overbought.

WHEAT futures in Chicago (CBOT) closed up again on Monday. The MAR’11 wheat contract closed at $8.720/bu; up 5.0 ¢/bu and 13.5 ¢/bu over last report. JULY’11 futures finished up 5.5 ¢/bu at $9.310/bu and 14.5 ¢/bu higher than this time last week. Wheat was supported by export demand, weather concerns for the crops in both the US and China, and fund buying. Export demand was firm with USDA putting wheat-inspected-for-export at 24.196 mi bu vs. expectations for 20-23 mi bu. Iraq bought 350,000 tonnes (12.9 mi bu) of US wheat; Tunisia bought 100,000 tonnes (3.7 mi bu) of US wheat; Egypt’s wheat imports are returning to normal; and Australia is on track to sell a record volume of wheat to China. USDA said US farmers intend to plant 57.0 mi acres of wheat in 2011, up from 53.6 mi acres planted in 2010. There is some concern that warmer US weather will melt the protective snow cover, add limited amounts of soil moisture, and leave the crop vulnerable to freeze damage from any future cold snap. Wheat bids in the US Plains were steady on Monday amid slow farmer selling. Fundamentally the 2 largest bullish factor for global wheat is that China could import as much as 4 mi tonnes (147.0 mi bu) if drought beginning there is as bad as crop experts fear.

LEAN HOGS on the CME finished mixed on Monday. The FEB’11LH contract closed down $0.725/cwt at $85.675/cwt but $1.865/cwt higher than last week at this time. The APR’11LH contract closed at $92.450/cwt; up $0.075/cwt and $0.625/cwt over last report. AUG’11LH futures closed at $100.775/cwt; down $0.050/cwt but $2.275/cwt higher than last week at this time. The February contract expired on Monday and held near cash. Cash hogs on Monday traded $2/cwt lower to dealers after processors overfilled lines late last week. However, losses in futures were limited due to strong meat demand, especially in the export market. USDA put pork exports for 2010 up 3 per cent over the previous year. Open interest was down 1,223 contracts at 246,960 lots. Some spreaders were noted exiting short positions in April which supported front month prices. USDA on Friday put the pork cutout at $88.31/cwt; down $0.64/cwt and $0.86/cwt lower than last report. According to HedgersEdge.com, the average packer margin was lowered $5.10/hd to a positive $3.85/hd based on the average buy of $62.07/cwt vs. the average breakeven of $63.47/cwt. The latest CME lean hog index was placed at 85.48 ¢/lb; up 0.95 ¢/lb and 3.73 ¢/lb over last report.