Last Friday, the U.S. Department of Agriculture released the latest Cattle on Feed report. The report is considered to be a neutral event as there were no surprises in the report and in the big scene of things, this report will have virtually zero impact on the near term price direction of the market.
The price direction is still dominated by the direction of the economy and the stock market. The cattle market remains fearful of the poor economic situation in the U.S., as well as the world, as this directly correlates to poor demand for beef.
The USDA estimated cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 11.3 million head on Feb.1. The inventory was 6 percent below Feb. 1, 2008.
Placements in feedlots during January totaled 1.86 million, 4 percent above 2008. Net placements were 1.79 million head. During January, placements of cattle and calves weighing less than 600 pounds were 380,000, while 600-699 pounds were 505,000, 700-799 pounds were 553,000 and 800 pounds and greater were 420,000.
Marketings of fed cattle during January totaled 1.74 million, 6 percent below 2008. This is the lowest fed cattle marketings for the month of January since the series began in 1996.
Other disappearance totaled 67,000 during January, 12 percent above 2008.
The USDA simultaneously released the monthly cold storage report. This report indicates the amount of supplies of certain commodities in refrigerated cold storage facilities. The USDA estimated frozen food stocks in refrigerated warehouses on Jan. 31 were greater than a year earlier levels for turkey, cheese, pork and beef.
Butter stocks were up 49 percent from last month, but down 5 percent from a year ago.
Total red meat supplies in freezers were down slightly from the previous month but up 3 percent from last year. Frozen pork supplies were up 7 percent from the previous month and up 4 percent from last year. Stocks of pork bellies were up 31 percent from last month, but down 4 percent from last year.
Total frozen poultry supplies on Jan. 31 were down 2 percent from the previous month, but up 4 percent from a year ago. Total stocks of chicken were down 10 percent from the previous month and down 11 percent from last year. Total pounds of turkey in freezers were up 15 percent from last month and up 39 percent from Jan. 31, 2008.
Corn closed the week $.13 lower. The weekly export sales report showed net sales of 1,332,300 metric tons were down 14 percent from the previous week, but up 9 percent from the prior four-week average. Increases reported for Japan (461,000 MT, including 76,700 MT switched from unknown destinations), Taiwan (348,200 MT),
Mexico (253,300 MT), South Korea (166,000 MT, including 50,000 MT switched from unknown destinations), the Dominican Republic (38,200 MT), and Egypt (38,000 MT, including 37,000 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (83,000 MT), Costa Rica (14,300 MT), Guatemala (8,400 MT), and Algeria (2,700 MT).
Optional origin sales of 55,000 MT were for South Korea. For the marketing year, corn sales are 53 percent behind last year’s demand pace. The USDA has now exported 1.093 billion bushels of corn compared to 1.946 bb last year. Seasonals are turning higher this week and normally prices strengthen to make highs during the planting timeframe.
Soybeans closed the week $.93 lower. The weekly export sales report showed net sales of 1,094,200 MT were up 2 percent from the previous week and 34 percent from the prior four-week average. Increases were primarily for China (873,600 MT, including 163,000 MT switched from unknown destinations), the Netherlands (76,400 MT, including 60,000 MT switched from unknown destinations), Egypt (71,200 MT), Germany (64,300 MT, switched from unknown destinations), and Mexico (48,100 MT). Decreases were reported for unknown destinations (98,000 MT), Hong Kong (55,000 MT), and Guatemala (6,300 MT). Net sales of 86,000 MT for delivery in 2009/10, were for unknown destinations (85,000 MT) and Japan (1,000 MT). This year’s export pace remains well above last year’s pace as the U.S. now has export commitments for 977 million bushels compared to 921 mb a year ago.
Technically, soybeans traded below the January lows in the month of February; leaving a chart pattern of lower lows and lower highs. This is the definition of a downtrend. Soybeans may have one final rally this spring if weather turns adverse, which producers should be aggressive marketers on.
Strategy & outlook:
Producers should have over 50 percent of their 2008 crop sold and/or hedged. The other 50 percent of corn should be sold in 10 percent increments on 20- to 30-cent rallies and soybeans in 10 percent increments in 40- and 70-cent rallies. New crop hedges should be placed once December corn reaches the $4.25 to $4.50 range and November soybeans reach the $10.25 to $10.75 range. If producers need to move corn for cash flow needs, I would suggest selling the crop and buying July call options that have four months of time value, no downside risk and cost about the same as storage and interest.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.
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