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Weekly Roberts Market Report

by 5m Editor
6 May 2011, at 1:58am

US - Besides the death of Osama bin Laden, a major news story of note is the planned intentional flooding of farmland in Missouri by the US Corps of Engineers.

The Corp intends to intentionally break a Mississippi levee in southeastern MO to save farmland and people’s property from flooding in Illinois.

The action is tied up in federal courts. If given the go ahead, about 130,000 acres of prime farm land will be in jeopardy and 100 homes will be flooded. The Army Corps called the possible break of the levee necessary to ease rising waters near Cairo, a 2,800 resident town located at the confluence of the Ohio and the Mississippi.

Missouri residents have asked the US Supreme Court to halt the plan. Explosives have already been loaded in Kentucky and are now on site at the levee to be breached. The fear is that if the levees are not blown up, the water levels in Cairo will rise up to 60 feet over flood stage.

The question of insurance has been raised as well. Since the flooding will be man-made vs. a natural catastrophe, Missouri residents fear they won’t be covered. And last but not least, there are fears that the flooded farmland will become useless for many years to come as the flooding will remove top soil and leave sand/silt in its wake that could take a generation to clear resulting in heavy injury to the quality of the farmland for many years.

LEAN HOGS on the CME closed up on Monday. The JUNE’11 LH contract closed at $95.475/cwt; up $0.250/cwt but $3.050/cwt lower than a week ago. AUG’11LH futures closed at $97.575/cwt; down $0.350/cwt and $1.900/cwt lower than last report. Futures started higher fueled by higher cash hog prices on forecasts for lower hogs numbers over the next few weeks.

Seasonality strength in pork prices were also supportive. Hog/corn ratios show continued incentive to contract the hog supply. Ratios are calculated by Dow Jones using industry-accepted fob cash hog prices and cash corn prices from private sources. Historically ratios at or above 20-1 for hogs (live basis) have resulted in expansion of production, while a ratio of 15-1 or less has resulted in contraction.

USDA put the pork cutout at $93.31/cwt; up $1.55/cwt but $1.67/cwt lower than last report. According to HedgersEdge.com, the average packer margin was lowered $0.20/head to a negative $2.90/head based on the average buy of $68.24/cwt vs. the average breakeven of $67.17/cwt. The latest CME lean hog index was placed at $94.98; up $0.16 and $0.78 lower than last report.

CORN futures on the Chicago Board of Trade (CBOT) finished down on Monday with the exception of deferreds December 2012 and beyond. The MAY’11 contract closed at $7.306/bu; down 23.25¢/bu and 31.75¢/bu lower than last week at this time. The DEC’11 contract closed at $6.612/bu; off 8.25¢/bu and 20.25¢/bu lower than last report.

Profit taking and improved planting weather weighed on prices. A weaker U.S. dollar was supportive in that a weaker dollar makes U.S. commodities more of a bargain for buyers using other currencies. Funds were balancing books on falling oil prices on the news of Osama bin Laden’s death by selling commodities. Exports were neutral.

Nearby corn contracts fell; most fueled by ideas that fund liquidation and export demand will slow limiting corn prices at or near all-time highs. Reports show that producers are planting night and day in the U.S. Midwest on the improved weather. Midwest corn producers try to have their corn planted by mid-May as yields can decline by about a bushel/day/acre for every day farms plant after the optimal planting period.

USDA put corn plantings at 13 per cent complete as of Sunday, off last year’s pace of 66 per cent complete this time last year and under the five-year average pace of 40 per cent for this time of year.

Traders worked on the general assumptions of 16 per cent planting progress. Two floor sources said the general thinking now is that producers can still plant 92.2 mi acres (the 2nd largest since 1944) despite early weather delays … and … if the weather continues to cooperate. Weather continues to heavily influence speculative price action. Speculators remained net long in CBOT corn futures for the week ended April 26, 2011.

USDA put corn-inspected-for-export at 34.635 mi bu vs. expectations for 31-36 mi bu. On another note, commodities seem unaffected by fears that potential retaliatory attacks the death of Osama bin Laden will cause much of a difference in grain trading. The general consensus among traders is that Bin Laden’s death will increase long-term stability in the Middle East. Improved weather and farmer planting progress is putting the pressure on prices.

There is still bullish support fundamentally for corn futures.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished down on Monday. The MAY’11 contract closed at $13.902/bu; off 2.5¢/bu but 0.75¢/bu higher than last Monday. NOV’11 soybean futures closed 0.5¢/bu higher than last Friday’s close at $13.736/bu and 8.75¢/bu lower than last report. Fund buying was supportive with funds increasing net long positions by 17,097 contracts. Exports were not supportive. USDA put soybeans-inspected-for-export at 5.525 mi bu vs. expectations for 10-15 mi bu. Soybean prices did make a session high of $14/bu but lacked upside momentum to push through chart resistance. The seeding pace of soybeans is not having the same price negative effect on soybeans as seen in corn futures because they are less critical at this stage of planting season.

Fundamentally U.S. soybean ending stocks will be at a historical low point for 2011 but the commodity is still seen as overvalued globally. Despite the low carryout projections for the U.S. soybeans, global supplies are unchanged from a year ago.

Cash soybeans were steady-to-firm at elevators amid slow farmer selling. Brazil’s 2010-11 crop is 95 per cent harvested vs. 97 per cent harvested this time last year with the yield forecast raised to a record 72.66 mi tonnes (2.67 bi bu), up from 70.56 mi tonnes (2.59 bi bu). Brazil harvested 68.5 mi tonnes (2.52 bi bu) in 2009-10.

USDA is scheduled to publish its World Agriculture Supply/Demand Estimates (WASDE) report on May 11. It is expected that exports will for both corn and soybeans will be lowered.

WHEAT futures in Chicago (CBOT) closed lower on Monday. The MAY’11 wheat contract closed at $7.596/bu; down 9.5¢/bu and $1.355/bu lower than last report. JULY’11 futures finished up 9.5¢/bu at $7.916/bu and 69.755¢/bu under last week. Floor sources said today wheat could never get much going in the pits while waiting on news from the 3-day crop tour of Kansas which begins on Tuesday. Additionally, traders took profits on recent high prices but these were limited by spillover weakness in corn futures. Some support came on weather news noting winter storms in Canada over the weekend damaging wheat fields in Alberta, Saskatchewan, and Manitoba. Exports were supportive with USDA putting wheat-inspected-for-export at 36.394 mi bu vs. expectations for 31-33 mi bu. India on Monday put off a decision to lift a ban on wheat exports saying the government will first need to take a look at requirements for a food security law to increase subsidized grain sales.

High global prices have encouraged Argentinean farmers to plant more wheat in 2011-12. Wheat output is expected to increase 20 per cent there. A Beunos Aires official, Pablo Adreani, head of of Agripac consultancy said it is expected that an additional 500,000 hectares (1.2 mi acres) will be planted to wheat. Wheat output is expected to be around 18 mi tonnes (661.4 mi bu); an increase of around 11.5 per cent for the upcoming wheat season.

Weather markets will continue to be the main price feature for wheat.

DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed up on Monday. The MAY’11DA contract finished at $16.47/cwt; $0.06/cwt higher than last Friday’s close. JULY’11DA futures finished at $17.80/cwt; up $0.07/cwt over last report and $0.10/cwt higher than this time last week. Futures in the second half of the year show prices for the benchmark Class III futures contract average up $0.12/cwt.

The first half of 2012 looks like prices will be around $16.25/cwt; up $0.10/cwt. Support in the cheese market is providing support for Class III prices. Butter prices were steady with little volume or change. Cheddar production dropped in the first quarter of 2011 while other cheeses and butter were up strongly. Spot NDM saw no activity as traders wait for results from Tuesday’s GDT auction.

Cheddar production was down sharply for January-March 2011 while that of other cheeses remained strong. Last week, CWT accepted 5 bids to provide subsidies on exports of 844,000 lbs of cheese for delivery through July.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were off on Monday. The JUNE’11LC contract closed at $111.950/cwt, down $1.400/cwt. AUG’11LC futures closed at $114.525/cwt; down $1.175/cwt but $0.075/cwt over last report.

The DEC’11LC contract closed at $121.675/cwt; off $1.225/cwt but $0.375/cwt higher than this time last week. Profit taking, seasonality, and higher fuel prices continue to weigh on fat cattle futures. USDA put the choice cutout at $182.03/cwt; down $2.11/cwt and $4.46/cwt lower than this time last week.

Not enough cash sales were made to establish an adequate market but USDA put the 5-area-average at $116.76; $2.36/cwt lower than a week ago. The slowdown in slaughter last week was particularly bearish as it is seen as backing up cattle in feedlots when an increase in cattle reaching market weights is expected.

Futures selling increased near the close as funds bought August and sold June to move long positions to the deferred contract. According to HedgersEdge.com, the average packer margin was lowered $14.00/head to a negative $33.85/head based on the average buy of $117.55/cwt vs. the average breakeven of $114.84/cwt.

FEEDER CATTLE at the CME closed down on Monday with deferreds breaking even. The MAY’FC11 contract closed at $131.050/cwt; down $0.850/cwt but $1.075/cwt higher than a week ago.

The AUG’11FC contract settled at $134.825/cwt, down $1.125/cwt but $0.875/cwt over last report. Feeders were supported on lower grain prices. At the closely watched feeder cattle auction in Oklahoma City feeder steers were steady to 3.00/cwt over a week ago. Feeder numbers for Monday, May 2, 2011 were estimated at 8,200 head vs. 4,193 this time last week and 9,939 head this time a year ago. Cash feeders were $3/cwt higher while feeder heifers were steady-to-firm.

Stocker calves were $2.00/cwt higher amid good demand for feeders and weaned calves. The National Feeder & Stocker Cattle Summary for the week ended 4/29/2011 showed 172,400 head sold this week vs. 222,200 head last week, and 260,700 head this time last year. Feeders sold in direct trade were $1/cwt lower. Yearling feeder supplies are seen as tight for the next couple of months. The latest CME feeder cattle index was placed at $133.39; up $0.64 and $0.99 over last report.