The story of the day continues to be centered on corn.
CORN futures on the Chicago Board of Trade (CBOT) finished at its highest level in three years on Monday amid outlook for tight supplies. The MAY’11 contract closed at $7.602 up 24.25¢/bu. The DEC’11 contract closed at $6.454; up 8.0¢/bu. On Monday commodity funds were net buyers of an estimated 25,000 contracts. Floor sources estimated that funds have bought over 95,000 corn contracts in the last three sessions, representing 475 million bushels of corn worth $3.5 billion based on current spot market prices! Although it is not known exactly how many corn contracts funds have bought, at what prices, that many bushels of corn would be worth about $3.61 billion based on the May 2011 contract price. Cash corn bids and basis rose on the bullish theme continuing to filter through the market following last week’s supply outlook from USDA. USDA projected corn inventories are expected to remain at the lowest levels in 15 years even as farmers claim they will increase planted acres by 5%. USDA pegged U.S. corn plantings this spring at 92.2 mi acres, above the average estimates and the second highest since 1944. Feed, ethanol, residual, and export demand are holding firm. At this rate the U.S. corn supply is on track to have end-of-season inventories lower than four day’s supply and raises prospects that any disruptions in corn supply during 2011 will make feed grain supplies critically tight over the next year. According to Darrel Good, an agricultural economist at the University of Illinois, “It appears that consumption is progressing at a rate that is unsustainable by available supply.” Farmers have been aggressively selling corn supplies and booking forward into 2011 and 2012 for $7/bu spot cash. That same sales pace is limiting advances in basis. Windy, wet weather is forecast to continue in the U.S. corn belt and may slow planting if it keeps up according to forecasts from agricultural meteorologists with USDA. Corn is now at near parity with wheat indicating wheat demand could surge for feed if corn supplies really tighten.
SOYBEAN futures on the Chicago Board of Trade (CBOT) finished mixed on Monday with all of the 2011 contracts declining amid profit taking. The MAY’11 contract closed at $13.840/bu; down 9.75¢/bu. NOV’11 soybean futures closed off 0.25¢/bu at $13.890/bu. Funds trimmed net bull positions in CBOT soybeans shifting to wheat positions. Funds sold 8,000 soybean lots and bought 8,000 wheat contracts. Reports that South America will likely harvest a record crop and talk of China shifting orders from the U.S. to Brazil pressured prices. Soaring corn prices supported soybeans late in the day. Soybean export and river basis are under pressure from lower basis levels at ports in Brazil and talk of China rolling back cargoes of previous purchases in export markets amid poor domestic crush margins. The uncertainty of U.S. weather heading toward spring plantings and its impact on final acreage totals will keep a very cautious outlook on selling, particularly in view of volatile price action.
WHEAT futures in Chicago (CBOT) closed up on Monday on strength in corn futures. The MAY’11 wheat contract closed at $7.900/bu; up 30.5¢/bu. JULY’11 futures finished up 30.75¢/bu at $8.266/bu. Wheat rose nearly 4%, but remained nearly 15% below a February peak providing some relief for world food costs prognosticators said would stoke inflation and unrest in a repeat of the 2008 food crisis. Wheat was near parity with corn on corn’s recent surge. Besides riding corn’s coattails wheat rallied as dry weather in the U.S. Plains threatened production of the largest U.S. class of wheat. If dry conditions persist spotty reports of condition and quality problems may become more persistent.
DAIRY CLASS III futures on the Chicago Mercantile Exchange (CME) closed down on Monday. The APR’11DA contract finished at $16.52/cwt; down $0.13/cwt. JULY’11DA futures finished at $17.00/cwt; off $0.32/cwt. Cheese production was up over 4% in February. Spot and futures prices declined ahead of USDA’s February “Dairy Products” production report. Blocks, barrels, and butter were all lower. Milk futures remain at a premium to spot prices, which equal a Class III price of about $15.40/cwt. According to USDA Cheese production was up 4.1% over a year ago at 807.1 mi lbs. However, cheddar production was down 0.6% while mozzarella was up 5.8% and production of all other varieties was up 6.7%. Last week CWT accepted 3 bids to provide subsidies on exports of 264,000 lbs of cheese for delivery through June.
LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished mixed on Monday. The APR’11LC contract closed at $122.375/cwt, up $0.300/cwt. AUG’11LC futures closed at $122.125/cwt; down $0.475/cwt. Livestock producers said they aren’t feeling the pain from corn’s latest surge in prices because they hedged their feed needs. Many have feed booked through summer. It was reported that Tyson Foods Inc. locked in feed prices last month through September 2011. Corn prices are discouraging livestock producers from expanding herd size, normally a function of higher beef prices. Floor sources have often told me they love volatility in order to make money. They have been getting their wish. Volatility in cattle prices attracted fresh money, with open interest on Friday setting third record in a row at 402,170 lots. USDA on Monday put the choice beef cutout price at $191.59/cwt; up $1.81/cwt and the highest it’s been since October 2003. Cash cattle were steady to $1 higher with USDA putting the 5-area average at $121.56/cwt. Last Thursday USDA put U.S. beef exports at 15,300 tonnes, up 6.3% from the week before and up nearly 3% from this time last year. Cash sales are holding at steady levels with the number of cattle offered for sale this week nearly unchanged from a week ago. Small reductions were seen in Texas and Nebraska, and the combined show-lists across the Plains were down about 1,700 head. Meat processors have had to raise beef prices to offset higher cattle prices. According to HedgersEdge.com, the average packer margin was a negative $3.70/head based on the average buy of $120.35/cwt vs. the average breakeven of $120.06/cwt.
FEEDER CATTLE at the CME closed lower on Monday. APR’11FC futures finished at $137.750/cwt; down $0.350/cwt. The AUG’11FC contract settled at $141.400/cwt, off $0.475/cwt. Feeders were pressured by high corn prices and profit taking after reaching record highs last week following gains in live cattle and higher cash feeder markets. Higher corn prices are limiting prices in the short run while floor sources believe higher corn prices will reduce overall cattle supplies and drive up prices. In Oklahoma City, OK estimated receipts were placed at 8600 head vs. 7984 last week and 7569 a year ago. Compared to last week feeder steers and heifers were steady to $3 higher. The CME feeder cattle index was placed at 134.43 cents/lb; up 0.55 cents/lb.
LEAN HOGS on the CME finished up on Monday with the exception of the APR’11LH contract. The APR’11LH contract closed at $94.200/cwt; down $0.025/cwt. AUG’11LH futures closed at $104.100/cwt; up $0.700/cwt. Traders took profits in the nearby April contract while repositioning into other months. Lean hogs rallied to close amid new highs in distant months. Hogs finished higher on higher corn seen as limiting herd expansion and thereby supporting prices. Cash hogs remained supportive with hogs from $0.50-$1/cwt higher in many markets. USDA on Friday put the pork cutout at $94.12/cwt; down $1.27/cwt. The latest CME lean hog index was placed at 88.61 cents/lb; up 0.58 cents/lb.