Weekly Roberts Market Report18 January 2013
Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University
US - Corn futures were supported by commercial and non-commercial buying, writes Michael T. Roberts.
- 15 January - Grain outlook – Elizabeth City. Contact Al Wood for details at (252) 338-3954.
- 8 February - Grain outlook - New Bern. Call (252) 633-1477 for details.
- 13-14 February - NC Dairy / Beef Conference – Hickory Convention Center. Contact Steve Washburn at ((919) 515-7726
- 26 February - Dairy Risk Management meeting - Iredell County Extension Center.
- Time - 10:00 am – 2:30 pm.
- $5.00 pre-registration or $10.00 at the door (for lunch planning).
- Topics include:
- A) Explaining in laymen’s terms Dairy Livestock Gross Margin Insurance by Dr. David Anderson from Texas A&M University
- B) the Latest look at the farm bill re: dairy by Dr. Scott Brown from the University of Missouri
- C) Grain and Dairy Outlook by... well me.
- Call 704-873-0507 to register or email me for brochure. You must register for lunch.
- 27 April – 2013 High Country Cattle Conference - Upper Mountain Research Station, Cattle and grain outlook. Contact Micah Orfield at (336) 846-5850
Note: If you would like a meeting in your area please contact me to see how we can work that out. As always I am available for risk management consultation as needed. See contact information below.
Risk Management Term of the Week: --- Cash Forward Contract – A contract, usually for later deliver, that specifies price, quality, and other conditions for delivery of a cash commodity.
Risk Management Principle of the week: The "Cash Forward Contract" is a popular and simple strategy to forward price a commodity for a set price and delivery in the future. One reason that cash forward contracts are so popular is that producers do not want to deal with the basis risk and are willing to pay someone else to handle the basis issues for them. This strategy shifts the price risk from the producer to the buyer. The seller should seriously consider on how much he/she is willing to pay for shifting that risk. If one is risk averse then they would be willing to pay (give up more of the net profit margin) more than one who is not so risk averse.
CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. MAR’13 corn futures closed at $7.240/bu; up 15.25¢/bu and 38.75¢/bu over last report. The DEC’13 contract closed at $5.840/bu; up 7.0¢/bu and 9.75¢/bu higher than this time last week. Corn futures were supported by commercial and non-commercial buying. The March contract verified chart signals indicating an uptrend preceding the usual June rally. A lower US dollar, fund buying, and firming inverse futures spreads were supportive. Corn exports are considered bearish with USDA putting corn-inspected-for-export at 9.239 mb vs. estimates for 8-15 mb. This was well below the 20.2 mb needed this week to stay on pace with USDA’s revised export demand projections of 920 mb. Please see chart:
The cash price for corn continues to rise on spillover strength from Friday’s USDA World Agriculture Demand Supply Estimates (WASDE) report. On Monday the national average basis was steady even with last week’s -4.0¢/bu under CBOT March futures. For now producers should hold off sales looking for strengthening corn prices in the near term.
SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. JAN’13 futures closed at $14.596/bu; up 35.0¢/bu and 49.0¢/bu over last report. The MAR’13 contract closed at $14.180/bu; up 44.75¢/bu and 29.75¢/bu higher than last week at this time. NOV’13 futures closed at $12.862/bu; up 20.0¢/bu over last Monday. Soybeans were supported on strong demand by fund bulls, good exports fueled by global demand, a lower US dollar, as well as last Friday’s bullish-for-soybeans USDA WASDE report. The rally was also fueled by an announced reduction in margin requirements effective at the close of business Tuesday. Exports were bullish with China announcing another large buy of US soybeans Monday morning. USDA put soybeans-inspected-for-export at 39.123 mb vs. estimates of 37-45 mb. This was well above the 15.5 mb bushels needed to stay on pace with USDA’s 1.345 bb demand projection. Please see chart.
Strength in soybean basis is mainly seen along the Mississippi River in St. Louis due to increased water levels after recent rains. Barge traffic is picking up after being almost idle the past few weeks. Cash soybean basis strengthened with the latest national average soybean basis placed at -13.0¢/bu under the Chicago March 2013 futures contract. Chart signals and fundamentals indicate producers should consider not pricing anymore crop in the near term.
WHEAT futures in Chicago (CBOT) closed up on Monday. MAR’13 wheat futures finished at $7.670/bu; up 12.25¢/bu and 15.75¢/bu over last report. The JULY’13 contract closed at $7.770/bu; up 10.0¢/bu and 9.5¢/bu higher than this time last Monday. Wheat, like corn was supported by spillover from soybeans, fund and commercial buying, and a lower US dollar. Increased buying came amid expected, increased seasonal demand. Exports were steady-to-weak with USDA putting wheat-inspected-for-export at 10.598 mb vs. estimates for 11-17 mb. This well behind the 27.017 mb needed this week to stay on pace with USDA’s demand projection of 1.050 bb. Basis levels for wheat were steady-to-firm. The Soft Red Winter wheat basis index was placed at -24.0¢/bu under CBOT March futures; 2.0¢/bu better than last report. Hard Red Winter Wheat basis index was placed at -44.0¢/bu under Kansas City March futures; 6.0¢/bu cents over last report. Hard Red Spring Wheat average basis index was placed at -49.0¢/bu under the Minneapolis March futures contract; 1.0¢/bu better than last week at this time. Considering chart signals and the neutral USDA WASDE report it would be wise to hold off pricing any more of the 2013 crop at this time.
DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) finished mixed on Monday. The JAN’13DA futures closed at $18.12/cwt, up $0.06/cwt and $0.15/cwt higher than last report. The MAR’13DA contract closed at $17.66/cwt; down $0.04/cwt and $0.69/cwt lower than a week ago. MAY’13DA futures closed at $18.32/cwt; up $0.05/cwt but $0.07/cwt lower than this time last Monday. Milk futures were mixed on steady-to-higher cash prices. Consumer demand and buyer interest was not supportive. Higher grain prices will pressure milk prices via milk supply in the long term. Some droughty conditions are already noted in dairy producing states. Still too early to tell but producers will be decimated by another year like last year. November exports of fluid milk and cream declined 8.8 per cent from this time last year. Cheese production settled lower after pre-holiday levels as inventory begins to build amid slower demand. Early exports signs signal that export increase has potential for the near-term. There have been reports of increased international demand. However, November export numbers show cheese exports declined 8.8 per cent from last year; the first time for a negative report since August of 2011. Butter exports also declined by 27.9 per cent after picking up significantly in December. Churning remains active meeting demand and building inventory. Chart signals indicate class III futures may have some strength in the near-term. Class III futures were: 3 months out = $17.79/cwt ($0.32/cwt lower than a week ago); 6 months out = $18.04/cwt ($0.23/cwt lower than this time last week); 9 months out = $18.25/cwt ($0.14/cwt under last report); and 12 months out = $18.27/cwt ($0.07 lower than last Monday). This week the variable cost of production for the average North Carolina conventional 200 cow dairy with a 23,000 lb average is $21.71/cwt. The price sensitivity table below shows lower milk prices are challenging dairy farm profitability and illustrates different returns/cow relative to varying increases and decreases to both milk prices and inputs costs over total Variable Costs for the same NC farm. Note only two spots on the table turning a profit.
LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed mixed on Monday. FEB’13LC futures closed at $130.350/cwt; down $0.250/cwt and $2.650/cwt lower than a week ago. APR’13LC futures closed at $134.750/cwt; up $0.200/cwt but $1.825/cwt lower than last report. The AUG’13LC contract closed at $129.900/cwt; up $0.125/cwt but $1.875/cwt lower than last Monday. Buying was sluggish on Monday amid limited showlists reflecting cash uncertainties. Cattle ready to sell were steady-to-smaller last week. Higher corn futures weighed and a “bubble” in supply weighed on prices. Even though near-term supply has increased the US cattle inventory is still the lowest it’s been in decades. Cattle feeders contacted Monday said the $64 question was should they hold cattle to heavier weights until February when seasonal demand is usually lower or should the sell the lighter cattle now on higher feed prices. Tight packer margins provided little incentive to increase cash bids with cash prices steady-to-$0.50/cwt higher. Monday afternoon USDA put the 5-area average at $126.09/cwt; $2.03/cwt lower than a week ago. Please see graph:
Late Monday USDA put wholesale boxed beef at $194.09; down $0.15/cwt but $0.60/cwt over last report. According to HedgersEdge.com, the average packer margin was lowered $7.40/head to a negative $62.80/head based on the average buy of $127.77/cwt vs. the breakeven of $122.78/cwt. For Monday, 1/14/13 cattle slaughter was steady at 128,000 vs. 127,000 last Monday and 128,000 head this time last year.
FEEDER CATTLE at the CME finished mixed on Monday with nearby contracts higher than deferreds. JAN’13FC futures closed at $149.45/cwt; down $0.0425 and $3.80/cwt lower and last report. APR’13FC futures closed at $153.300/cwt; off $0.075/cwt and $4.625/cwt lower than a week ago. The AUG’13FC contract closed at $160.575/cwt; up $0.400/cwt but $3.425/cwt lower than last week at this time. The January feeder cattle contract lost 0.42 per cent while April feeders lost 0.2 per cent. Higher feed grains and bear spreading notably weighed on futures. For Monday 01/14/13 estimated receipts at the closely watched Oklahoma City market were put at 8,500 head vs. 10,751 last week and 11,265 head this time last year. Compared to last week feeder steers and heifers were $2-$5/cwt lower. Steer and heifer calves were steady amid a good supply of long weaned and thin fleshed calves offered. Demand was considered moderate-to-good with few good bids for 800-900 lb steers and 700-800 lb heifers. Demand was considered very good for lightweight, thin cattle. According to a couple of buyers at the auction these cattle will most likely end up on grass. Quality was average-to-attractive.
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.
The CME feeder cattle livestock index was placed at 150.45; off 0.37 but 0.13 over last report. Please see chart:
LEAN HOGS on the CME finished up on Monday. The FEB’13LH contract closed at $85.225/cwt; up $1.025/cwt but $1.075/cwt lower than a week ago. APR’13LH futures closed at $87.850/cwt; up $0.725/cwt but $1.700/cwt lower than last report. The JUN’13LH contract closed at $96.850/cwt; up $0.350/cwt but $1.700/cwt lower than last Monday. Lean hog futures made solid gains with retail buying data showing decent pork competitiveness with expensive beef and chicken. Cash trade volumes were slow amid steady-to-$0.50/cwt higher bids. Sellers were reluctant waiting on higher cash bids. Cash hog bids should be firm-to-higher through mid-week. For Monday 01/14/2013 USDA put last week’s hog slaughter at 431,000 head vs. 432,000 the previous week and 396,000 head a year ago. Late Monday USDA put the lean pork cutout at $83.43/cwt, off $0.48/cwt and $0.25/cwt lower than last report. According to HedgersEdge.com, the average packer margin was raised $4.40/head from last report to a negative $1.30/head based on the average buy of $60.68/cwt vs. the breakeven of $60.21/cwt. The CME two-day lean hog index, calculated using USDA market data, for Friday was up 0.17 cents at 84.64 cents a pound; 1.11 cents higher than last report.
This table shows the maximum price a producer could pay for feeder pigs 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.