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Weekly Roberts Market Report

09 February 2012

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

US - A firmer US dollar and lower crude soybean oil prices hung over the market, writes Michael T. Roberts.

LEAN HOGS on the CME finished mixed on Monday. The FEB’12LH contract closed at $87.125/cwt; off $0.400/cwt but $0.675/cwt over last report. MAY’12LH futures closed at $97.00/cwt; down $0.250/cwt but $0.75/cwt higher than a week ago. AUG’12LH futures finished $0.225/cwt higher at $98.50/cwt and $0.75/cwt higher than this time last week. Volatile cash markets weighed on nearby contracts. Expectations for seasonally increased demand and uneven wholesale markets for hogs and pork were reflected in futures months. Negative packer margins continue to reflect sluggish wholesale pork prices and patchy demand for fresh supplies. USDA put pork carcass cutout at $84.75/cwt; down $0.335cwt from Friday but $1.49/cwt higher than last report. Last week’s processing of 2.14 mi head was 1.4% lower than the previous week because of continued negative margins and the fact that most processors are flush with supplies. Cash markets will most likely remain lackluster. According to HedgersEdge.com, the average packer margin was raised $2.60/head to a negative $4.85/head based on the average buy of $62.86/cwt vs. the breakeven of $61.10/cwt. The CME lean hog index was placed at $87.07; off $0.02 and $0.66 lower than last Monday.

CORN futures on the Chicago Board of Trade (CBOT) closed mixed on Monday. MAR’12 futures closed at $6.442/bu; down 0.25¢/bu but 12.75¢/bu higher than a week ago. The JULY’12 contract closed at $6.562/bu; up 0.75¢/bu. The DEC’12 contract closed at $5.812/bu; off 0.25¢/bu but 16.75¢/bu higher than this time last week. Profit taking, a firm US dollar, spread unwinding, and position squaring ahead of Thursday’s World Agriculture Supply Demand Estimate (WASDE) report weighed on prices. A firm US dollar makes US exports more expensive on the world market. Traders unwound long corn/short wheat and soybean spreads throughout the day. Even though US exports were more expensive corn exports finished well. USDA put corn-inspected-for-export at 39.389 mi bu vs. estimates for 35-40 mi bu. Year-to-date exports are 710,614 mi bu, 1.449 mi bu behind this time last year. Shrinking production in Argentina and Brazil due to drought is expected to boost corn exports. Brazil’s 2011-12 total corn crop is placed at 60.6 mi tonnes (2.386 mi bu); down 1.38 mi tonnes (2.44 mi bu). Analysts’ average estimates expect US supply to shrink by 55 mi bu; down 6.5% from last month’s government forecast. The average of analysts’ estimates put the 2011-12 US corn carryout at 791 mi bu; below the USDA January forecast of 846 mi bu. Corn seems to have reached a level of equilibrium as the market adequately reflects current fundamentals. Some traders and firms expect USDA to significantly raise corn acres on Thursday. If they do, prices may be pressured downward. If not, today is the time to consider pricing corn.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished mixed on Monday with some deferreds down and other contracts up. The MAR’12 contract closed at $12.333/bu; up 0.5¢/bu and 48.25¢/bu over a week ago. NOV’12 futures closed at $12.390/bu; up 1.75¢/bu and 44.75¢/bu higher than last report. Profit taking forced prices off session highs. Firm cash markets, expectations of US soybean sales to China, and concerns about the crop in South America were supportive. A firmer US dollar and lower crude oil prices hung over the market. Export inspection numbers released Monday were disappointing. USDA put soybeans-inspected-for-export at 37.292 vs. estimates for 40-45 mi bu. Year-to-date US exports are 755,595 mi bu vs. 1.023 bi bu this time last year. Ongoing concerns about South American crop production losses from drought stress remained a supportive feature for prices. Recent rains are expected to stabilize crop conditions at best. Meanwhile crop sizes for both Argentina and Brazil are expected to be way off last year. Soybean prices are also supported by unstable oil market conditions and expectations that Thursday’s WASDE report will increase corn acres encouraging a bidding war for acres.

WHEAT futures in Chicago (CBOT) closed up on Monday. The MAR’12 contract closed at $6.684/bu; up 7.75¢/bu and 23.75¢/bu higher than last report. JULY’12 wheat futures finished at $6.920/bu; up 3.0¢/bu and 20.75¢/bu higher than last week at this time. A 1.1% gain in CBOT soft red winter wheat, short-covering, strong chart signals, and tightening of global stocks were supportive. Exports were disappointing with USDA putting wheat-inspected-for-export at 14.505 mi bu vs. estimates for 17-22 mi bu. Concerns over cold weather in the key wheat-growing areas of the Black Sea region and Europe were supportive. Crop development overseas could be affected increasing demand for US grain supplies. Data for large funds last Friday showed them cutting net short positions in CBOT wheat from record levels and buying some long contracts. Analysts, on average, expect USDA to trim ending stocks of wheat from the 2011/12 crop year by 3 mi bu to 867 mi bu. Global ending stocks were forecast to be reduced to 208.963 mi tonnes (7.678 bi bu) from 210.020 mi tonnes (7.717 bi bu) from last month’s report. Consider holding off pricing anymore of the 2012 crop.

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