Weekly Roberts Market Report

by 5m Editor
27 June 2012, at 6:54am

US - The corn market will remain extremely sensitive to weather over the next couple of weeks, writes Michael Roberts.

LEAN HOGS on the CME finished down with the exception of the nearby July 2012 contract. JULY’12LH futures closed at $93.500/cwt; up $0.150/cwt but $1.950/cwt lower than last report. AUG’12LH futures finished $0.40/cwt lower at $88.750/cwt and $4.475/cwt lower than last Monday’s close. The DEC’12LH contract closed at $77.375/cwt; off $0.100/cwt and $1.050/cwt lower than last report. Fears over expanding supplies and higher grain prices had traders backing away from the latest six-week rally. Pit sources said early Tuesday that hog futures will now begin to steadily decline after the nearby contract gained 21 per cent from early May through last week. Supplies of pork in cold storage are the highest on record at the end of May, according to a USDA report issued last Friday. Meanwhile, the seasonal production trend is that live-hog supplies typically reach their lowest point of the year in June or July before expanding through mid-winter. Slaughter rates are at the tightest point of the year supporting prices. Cash-hog prices ranged from flat to $2/cwt lower on limited buying interest. Late Monday, June 25, USDA put the pork cutout value at $101.29/cwt; up $0.48 and 6.960/cwt over last report. Tight supplies and lighter live-weights due to the spring heat wave have forced processors to bid up prices for hogs. In some cases plants have decided to limit production rather than pay through the nose for hogs that don’t cover sales. Poor processing margins and uncertainty about demand for fresh pork ahead of July 4th may result in some additional cutbacks in processing schedules. According to, the average packer margin was lowered $0.65/hd placed at a negative $8.60/head based on the average buy of $75.89/cwt vs. the breakeven of $72.72/cwt. The latest CME lean hog index was estimated at 102.01; up 0.59 and 6.76 higher than last Monday. USDA on Monday estimated the daily processing at 384,000 head vs. 391,000 head last Monday and 388,000 a year ago.

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) closed up the limit on Monday. Daily trading limits on Tuesday expand to 60.0¢/bu. The JULY’12 contract closed at $6.310/bu; up 40.0¢/bu and 31.75¢/bu over last report. The DEC’12 contract closed at $5.940/bu; up 40.0¢/bu and 60.0¢/bu over last Monday’s close. Corn prices skyrocketed up the limit as summer heat baked Midwestern crops. Traveling through Eastern Kentucky, Southern Illinois, and Missouri recently corn crops looked very thirsty and were penciling as early as 10:00 a.m. Little-to-no-rain is in the forecast however the hurricane will help Southern Georgia crops. This hot weather is hitting during the key pollination phase. The market will remain extremely sensitive to weather over the next couple of weeks. Late Monday USDA downgraded the corn crop in good-to-excellent condition to 56 per cent from 63 per cent. Corn basis weakened. Lingering concerns over Europe’s debt crisis also were supportive. Exports were helpful as USDA put corn-inspected-for-export through June 21 at 27.012 mb vs. estimates for 20-25 mb. Thirty-five mb were needed this week to stay on pace with USDA’s demand projections of 1.65 bb. See chart:

The national average basis for corn was down 4.0 ¢/bu to 47.0¢/bu over December 2012 futures. Subscribers to certain DTN services are able to map basis and prices for crop commodities. Below is a screen shot of that technology. While not promoting the website I find it very useful in locating pricing information by locality and distance from any given location using the mapping and circumference tools. As of last night using my location in North Carolina cash corn prices were $6.81/bu in Statesville, NC (basis 87.0¢/bu); $6.31/bu in Goldsboro, NC (basis 37.0¢/bu); and $6.51 in Petersburg, VA (basis 57.0¢/bu). This would be good information for producers, merchandisers, and corn users alike.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed sharply higher on Monday. The JULY’12 contract closed at $14.824/bu; up 40.0¢/bu and $1.00/bu over last Monday. NOV’12 futures closed at $14.254/bu; up 50.0¢/bu and 86.25¢/bu over last report. The same weather premium and global economic forces are supporting soybeans that are supporting corn. Weather forecasts indicate little relief in sight. The key to soybeans, much like corn, remains concern over damage being done to the crop at a time when crop production has little margin for error. Soybean crops are in a critical stage of blooming. USDA put the US soybean crop blooming stage at 12 per cent vs. 5 per cent last week and the 4 per cent five year average. Additionally, the soybean crop in good-to-excellent condition was lowered 3 per cent from last week to 53 per cent. Unlike corn, though, there is little USDA is going to be able to do in regards to number "adjustments" to keep domestic supplies from tightening to alarming levels if the weather doesn't change. Dry weather conditions in South America have the market concerned that the South American soybean crop will be reduced increasing prospects for US exports. Exports were bearish with USDA putting soybeans-inspected-for-export at 9.182 mb vs. estimates of 10-15 mb. This is below the 13.1 mb needed to stay on track with USDA export demand projections. See chart:

While the national average basis for soybeans was down 1¢/bu at 42¢/bu under November 2012 futures basis in the Southeast was stronger. See DTN source screenshot below.

Should producers sell on the rally or wait for prices to rise further? What happens if the weather changes and the US crop comes in? The soybean market could go south in a hurry. The challenge for pricing soybeans at this time are similar for the producer and the user but in a mirror image sort of way. The producer wants to hold onto the crop as long as possible in order to get the best price. The user wants to price at the lowest point possible. At the same time neither wants to give up gains in profit margins. If the market does decline quickly don’t be the guy that waited too long to price soybeans.

The best thing for a producer (user) to do might be to sell (buy) on a scale-up (scale-down) basis when the market is rallying (declining). That is, pick a price point and time period that yields a profit you can live with and sell (buy) a portion of the crop (input) at that point. Then pick another point and let go (buy) a little more and so on. Realizing you probably won’t hit the high (low) of the year your trades have a greater change of being profitable. This goes for a declining market. Don’t be the one who waits for the rebound that may never come. Pick a point that leaves you a profit and sell (buy) a portion, then another, and then another. The strategy of making a profit at each price point will … guess what? … result in an ultimate profit all around. No you may not hit a “home-run“ but you will make a profit. In volatile markets paying attention to selling (buying) at profit-margin points will always keep you in business even though you may be disappointed in not achieving the highest (lowest) selling (buying) price. One thing to remember is that the producer (user) should know the cost of production at all times.

Most merchandisers have various programs to help producers and users in this effort. Be sure you understand what you’re getting into though. A good rule of thumb is, “If you don’t fully understand it, don’t do it until you do.“ Ask questions, it is your money.

WHEAT futures in Chicago (CBOT) closed up on Monday. JULY’12 wheat futures finished at $7.242/bu; up 51.0¢/bu and 94.0¢/bu over last report. The JULY’13 contract closed at $7.764/bu; up 46.75¢/bu and 72.75¢/bu over this time last week. The potential for a smaller corn harvest is supportive on expectations that demand will pick for wheat used for livestock feed. Exports were neutral with USDA putting wheat-inspected-for-export at 19.484 mb vs. estimates for 18-24 mb. Wheat prices were also supported on falling expectations for wheat production in important areas like the Black Sea region and Australia. USDA put the US winter wheat crop harvest at 59 per cent this past week vs. 48 per cent the week before and the five-year average of 27 per cent. The national average basis for HRW wheat was unchanged at 37¢/bu under the July futures contract.

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