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BRIAN HOOPS

By Staff | Jan 28, 2010

The USDA released its latest Cattle on Feed report Friday for the month of January.

The report is considered friendly with highlights including an 11-year low in cattle placements and an eight-year low on feed supplies. Terrible winter storms in the month of December were a major contributing factor to placing less cattle on feed than expected and marketing cattle more aggressively.

The USDA reported cattle and calves on feed for slaughter market in the U.S. for feedlots with capacity of 1,000 or more head totaled 11 million head on Jan. 1. The inventory was 2 percent below Jan. 1, 2009.

The inventory included 6.88 million steers and steer calves, down 3 percent from the previous year. This group accounted for 62 percent of the total inventory.

Heifers and heifer calves accounted for 4.07 million head, down 1 percent from 2009. This was an eight-year low for on-feed supplies.

Placements in feedlots during December totaled 1.55 million, 6 percent below 2008. Net placements were 1.47 million head. During December, placements of cattle and calves weighing less than 600 pounds were 430,000, between 600 to 699 pounds were 420,000, between 700 to 799 pounds were 401,000, and 800 pounds and greater were 295,000. Placements came in at an 11-year low.

Marketings of fed cattle during December totaled 1.74 million, 4 percent above 2008. Other disappearance totaled 72,000 during December, 5 percent below 2008.

Cold storage report

Frozen food stocks in refrigerated warehouses on Dec. 31, 2009 were greater than a year earlier for cheese, butter and eggs.

Butter stocks were down 6 percent from last month, but up 12 percent from a year ago.

Total red meat supplies in freezers were down 1 percent from the previous month and down 14 percent from last year. Frozen pork supplies were down 2 percent from the previous month and down 15 percent from last year. Stocks of pork bellies were up 30 percent from last month and up 12 percent from last year.

Total frozen poultry supplies on Dec. 31, 2009 were down 1 percent from the previous month and down 24 percent from a year ago.

Total stocks of chicken were down 4 percent from the previous month and down 18 percent from last year. Total pounds of turkey in freezers were up 7 percent from last month, but down 37 percent from December 31, 2008.

Corn analysis

Corn closed the week $.06 1/2 lower. With the sharp drop in prices, export business is starting to pick up, including a marketing year high in weekly export sales. Last week the USDA reported a 116,000-metric ton corn sale to an unknown destination. Commercials continue to provide support to the market as they are buying back their shorts and are now using price weakness as an opportunity to extend coverage into the summer months, which always brings uncertainty and production concerns.

As the prices work lower during the winter months, producers should look to use options as a way to re-own cash sales for a summer rally.

If prices fall to weekly support of $3.10, look for major commercial buying to support the market at this area and should establish a winter low. The weekly export sales report showed net sales of 1.6 million metric tons for delivery in 2009/10 – a marketing-year high – were up noticeably from the previous week and from the prior four-week average. Increases were reported for unknown destinations (408,600 MT), Japan (290,700 MT, including 70,600 MT switched from unknown destinations and decreases of 94,500 MT), South Korea (268,500 MT) and Taiwan (173,400 MT).

Strategy and outlook: Producers should have hedges up to the 70 percent level. Producers will want to use price weakness to re-own cash sales with futures and options on a price correction. Buy July options on a pullback into a support level.

Hedgers have sold a portion of the 2010 crop when December futures traded above $4.50. When prices move above last spring’s highs of $4.73, producers should look at buying new crop put option protection and add to cash sales.

Soybean analysis

Soybeans closed the week $.22 1/2 lower. After a sharp two week break in prices, export business is starting to pick up again. Last week, the USDA announced two separate private export sales. The USDA announced a 100,000 mts soybean sale to China on Jan. 19 and a 230,000 mts sale to China on Jan. 21.

The weekly export sales report showed net sales of 929,600 MT for delivery in 2009/10 were up 23 percent from the previous week and 7 percent from the prior four-week average.

Increases were primarily for China (700,400 MT, including 226,000 MT switched from unknown destinations and decreases of 40,200 MT), Mexico (113,100 MT), Egypt (80,700 MT, including 33,000 MT switched from unknown destinations) and Germany (77,300 MT, including 70,000 MT switched from unknown destinations).

Commercials are starting to buy back short and are close to a level that has resumed previous rallies. Look for major commercial support to limit the downside in soybeans to another 50 cents.

Strategy and outlook: Producers should have hedges at the 70 percent level. With the tight basis levels and lack of carry in the market, the market is telling producers to sell the product now and use price weakness to re-own the crop with futures and options.

Buy July options on a pullback into a support level. Producers have sold 2010 crop when November futures traded above $10.30.

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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