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Weekly Roberts Market Report

by 5m Editor
19 July 2012, at 8:13am

US - Hot weather lowering expected production and deteriorating crop conditions are supportive, writes Michael Roberts.

LEAN HOGS on the CME finished mixed on Monday. JULY’12LH futures closed at $97.075/cwt; off $0.150/cwt but $0.275/cwt over last report. AUG’12LH futures finished $0.025/cwt higher at $90.425/cwt but $3.525/cwt lower than last Monday’s close. The DEC’12LH contract closed at $76.875/cwt; down $0.125/cwt and $5.125/cwt higher than last report. Surging corn and soybean prices are encouraging producers to sell more animals than they planned. The July contract expired today. The hot weather is limiting growth rates and traders see this as eventually working into lower pork supplies via lighter slaughter weights. In addition, surging grain prices are seen as motivating growers to sell hogs lighter to get them off pricey feed. All this means lower cash prices as supply creeps over demand. Processors aren’t too eager to buy hogs that are losing them money. Stagnating wholesale-pork prices are not covering costs for fresh batches of animals. USDA late Monday put the carcass cutout value at $88.81/cwt, off $0.68/cwt and $1.06/cwt lower than last Monday. Processors are cutting back where they can. A plant in Iowa did not operate on Monday. Today’s slaughter was estimated at 375,000 head vs. 393,000 head a week ago and 400,000 head this time last year. Cash hogs were $1-$2 lower with tops from $59-$69/cwt on a live basis. According to HedgersEdge.com, the average packer margin was placed at a negative $7.30/head based on the average buy of $67.07/cwt vs. the breakeven of $64.35/cwt. Monday the CME lean hog index was estimated at 98.05; down 0.72 and 2.53 lower than last report. A note about the CME lean hog index: The CME Lean Hog Index is a two-day weighted average of “average“ net prices for slaughtered barrows and gilts (hogs). This data is collected by USDA in its National Daily Direct Hog Prior Day Report-Slaughtered Swine. This is a measure of price, weight, and carcass value velocity and can be an indicator of price direction trend.




This table shows the maximum price a producer could pay for feeder cattle and still break even, assuming the costs and conversion/performance factors listed above. Producers should remain aware that calculations are based on averages. Courtesy DTN.

CORN futures on the Chicago Board of Trade (CBOT) finished higher on Monday. The SEPT’12 contract closed at $7.766/bu; up 36.25¢/bu. The DEC’12 contract closed at $7.724/bu; up 32.25¢/bu and 42.0¢/bu over last Monday’s close. Hot weather lowering expected production and deteriorating crop conditions are supportive. This year is now being compared meteorologically to 1988. The USDA World Agriculture Supply Demand Estimate (WASDE) report drastically reduced corn production by 1.8 bb. The US drought of 1988 was one of the worst in US history. It caused over $60 billion in damage. It was one of the worst airborne-dust events since 1977 or the 1930s. It closed schools in South Dakota in late February of 1988. Many records were set, e.g. 55 consecutive days without rain in Milwaukee and two record-setting heat waves occurred just as they did in 1934 and 1936. Let’s hope this doesn’t continue. Late Monday USDA published its Crop Progress report showing 71 per cent of the US corn crop has silked vs. the 36 per cent five-year average and 50 per cent last week. USDA put the US corn crop in good-to-excellent condition at 31 per cent vs. 40 per cent last week and 66 per cent this time last year. Field reports are showing corn in many places now being chopped for silage due to the lack of expected production. Chart signals indicating strengthening inverses in the forward curve of futures spreads reflect a mounting bullish commercial outlook long-term. Exports were bullish with USDA putting corn-inspected-for-export at 21.732 mb vs. estimates for 8-19 mb. This was well below the 32 mb needed this week to stay on pace with USDA’s export demand projections. Please see chart.

Cash corn basis was down 2.0-4.0¢/bu over the nearby contract. The national average was +30.0¢/bu over futures. Basis in the Mid-Atlantic ranged from +10.0¢/bu in Virginia to +42.0¢/bu in Central North Carolina. It sure would be wise to consider pricing more of the 2012-13 crop if you think you can produce it.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The AUG’12 contract closed at $16.336/bu; up 39.0¢/bu. NOV’12 futures closed at $15.904/bu; up 38.0¢/bu and 42.75¢/bu over last report. The heat wave is fueling speculation. Yield projections for US soybeans last week were lowered 3.4 bu from the June USDA WASDE report to 40.5 bu/ac. US ending stocks for soybeans last week were lowered 10 mi bu. South America’s soybean crop is decimated and many are now predicting that the US soybean yield will be even lower than the USDA’s projection. Demand is yet to slow. The national average soybean basis was 30.0¢/bu under August 2012 futures with basis ranging from -35.0¢/bu in central North Carolina to +20.0¢/bu in Virginia. Exports were neutral with USDA putting soybeans-inspected-for-export at 14.271 mb vs. estimates for 13-20 mb. This was above the 13.1 mb needed to stay on pace with USDA’s demand projections. Please see chart:

USDA put the US soybean crop in good-to-excellent condition at 34 per cent; down from 40 per cent last week and 54 per cent this time last year.

WHEAT futures in Chicago (CBOT) closed up on Monday. SEPT’12 wheat futures finished at $8.844/bu; up 36.75¢/bu. The JULY’13 contract closed at $8.410/bu; up 10.75¢/bu and 10.0¢/bu over this time last week. USDA reduced all-wheat ending stock estimates by 30 mb from the June estimate. Stocks-to-use-ratios were projected lower for corn, soybeans, and wheat in both the US and the World. Heat and increased demand were supportive. Some contracts traded to $9.00/bu before settling back on the close. Lower production news from the Ukraine, Russia, and India regarding short crops and increased feed demand over USDA projections were very supportive. Exports are considered neutral with USDA putting wheat-inspected-for-export at 14.913 mb vs. estimates for 12-19 mb. The national average basis for HRW wheat was steady at -52.0¢/bu from the nearby contract while basis in the Mid-Atlantic ranged from +10.0-+20.0¢/bu over. USDA put the 2012 winter wheat harvest 80 per cent complete vs. 65 per cent for the five-year average. Additionally, USDA put the US Spring wheat in good-to-excellent condition at 65 per cent vs. 66 per cent last week and 73 per cent this time last year.

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