On Friday, the U.S. Department of Agriculture released its latest cattle on feed report. The report, like the majority of the recent reports, held no surprises for the marketplace. The actual numbers came in very close to expectations and leaves the market to continue to follow the cash and boxed beef trade.

The USDA estimated cattle and calves on feed for U.S. slaughter market, in feedlots with capacity of 1,000 or more head, totaled 9.9 million head on Sept. 1. The inventory was 1 percent below Sept. 1, 2008. This was slightly above estimates of 98.5 percent, but within the range of estimates. Producers have also noted that due to the cool summer weather, the rate of gain has been tremendous and cattle are weighing heavier than expected and will be ready for market sooner than expected. This should be a negative for the on-feed number, because more up-front poundage will be available.

Placements in feedlots during August totaled 2.11 million, 2 percent above 2008. Net placements were 2.06 million head. During August, placements of cattle and calves weighing less than 600 pounds were 425,000, 600-699 pounds were 395,000, 700-799 pounds were 515,000, and 800 pounds and greater were 775,000.

Placements have increased more than the average estimate, but within the range of pre-report expectations, as there were some profitable opportunities over the last 60 days. Producers took advantage of these opportunities by placing more cattle on feed than expected. Hopefully, these same producers also placed hedges on their cattle to control the economics of the cattle market.

Marketing fed cattle during August totaled 1.81 million, 4 percent below 2008. This is the lowest fed cattle marketing for the month of August since the series began in 1996. Sales should improve, however, over the next several months as producers have heavier cattle than expected and will need to be more aggressive in their marketing efforts.

Other disappearance totaled 55,000 during August, 12 percent above 2008.

Corn analysis

Corn closed the week $.01 3/4 lower. The weekly export sales report showed net sales of 965,600 metric tons were reported for South Korea (268,300 MT), Japan (250,700 MT, including 97,000 MT switched for unknown destinations), Taiwan (226,000 MT), Mexico (160,300 MT), the Dominican Republic (32,200 MT), Peru (31,000 MT, including 22,000 MT switched from unknown destinations), and Venezuela (26,700 MT).

Decreases were reported for unknown destinations (141,500 MT) and Guatemala (7,200 MT).

The USDA left crop ratings unchanged at 69 percent as good to excellent. Crop ratings continue to closely trace the record crop yield year of 1994. In that year, crop lows were not made until the last week of November. Normally big crops have long tails, meaning it takes a long time to carve out a low. I continue to feel the USDA is overstating the current demand base, which should mean ending stocks would grow over the next four months.

The huge crop combined with swelling ending stocks is bearish for prices over the next four months. I recommended producers reward rallies with additional hedges and last week’s frost scare will likely be the last opportunity for producers until after harvest for a major rally.

Corn strategy and outlook: Producers should have managed their risk by placing new crop hedges when December reached the initial upside target of $4.25 to $4.50 range. Producers should have used a combination of cash sales, hedges and put options to effectively manage risk. Once the December contract fell to $3.25, producers should have now rolled those options to a lower strike price to capture hedge profits. There is no reason to get long and re-own sales.

Soybean analysis

Soybeans closed the week $.38 higher. The weekly export sales report showed net sales of 489,400 MT for the 2009/10 marketing year (which began Sept. 1) were primarily for China (463,400 MT, including 55,000 MT switched from unknown destinations), Mexico (34,200 MT), Malaysia (23,600 MT, including 15,200 MT switched from unknown destinations), Turkey (20,000 MT), and Indonesia (10,100 MT).

Net sales of 215,000 MT for 2010/11 delivery were for South Korea. Exports of 263,800 MT were primarily to China (164,400 MT), Mexico (29,100 MT), Japan (22,900 MT), Malaysia (22,200 MT), and Egypt (9,300 MT). Like corn, soybean ratings were unchanged from the previous week at 68% g/e. This year’s soybean crop continues to be the highest rated crop in history. Last week’s frost scare rally will likely be the last rally prior to harvest as the soybeans appear poised to work lower during the next 3 to 6 weeks as the U.S. will harvest a record crop and harvest pressure will initially weigh on prices. Soybeans have been supported by large Chinese purchases of U.S. new crop beans as China is in the early stages of a drought.

If the drought intensifies, China will continue to purchase U.S. soybeans, as they have no other source to meet their country’s growing demand for protein.

Strategy and outlook: Producers should be hedged in new crop soybeans when November soybeans reached the long held target of $10.25 to $10.75. Producers should have used a combination of cash sales, hedges and put options to effectively manage risk. If the new crop November contract fall to $8.00, producers should liquidate their put options.

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.