Last Friday, the USDA released its monthly cattle on feed report, which was broadly considered negative from the perspective that placements were above expectations; however placements were still down from last year, despite missing the average guess by 3 percent.
The reaction to the report should consist of ongoing strength in the February contract as higher cash trade and tight supplies are supportive to the market.
The reaction to the rest of the contract months should see additional hedge pressure going into the month of March.
Cattle and calves on feed for slaughter market in the United States (for feedlots with capacity of 1,000 or more head) totaled 11 million head on Feb. 1. The inventory was 3 percent below Feb. 1, 2009.
Placements in feedlots during January totaled 1.83 million, 2 percent below 2009. Net placements were 1.76 million head. During January, placements of cattle and calves weighing less than 600 pounds were 400,000,
600-699 pounds were 445,000, 700-799 pounds were 560,000, and 800 pounds and greater were 420,000.
Fed cattle marketing during January totaled 1.77 million, 2 percent above 2009. This is the third lowest fed cattle marketing levels for the month of January since the series began in 1996.
Other disappearance totaled 70,000 during January, 4 percent above 2009.
The USDA also released the U.S. and Canadian cattle inventory report last week.
All cattle and calves in the U.S. and Canada combined totaled 106.7 million head on Jan. 1, down 1 percent from the 107.7 million on Jan. 1, 2009. All cows and heifers that have calved, at 45.9 million head, were down 2 percent from a year ago.
All cattle and calves in the United States as of Jan. 1, totaled 93.7 million head, 1 percent below the 94.5 million on Jan. 1, 2009. All cows and heifers that have calved, at 40.5 million head, were down 1 percent from a year ago.
All cattle and calves in Canada as of Jan. 1, totaled 13.0 million head, down 1 percent from the 13.2 million on Jan. 1, 2009.
All cows and heifers that have calved, at 5.45 million, were down 3 percent from a year ago.
Corn closed the week $.01 1/2 lower. Commercial buying and early week short covering allowed corn to close the week essentially unchanged to slightly lower. The crude oil market has made its seasonal lows and it is likely the corn market will soon follow the path of crude oil.
Limiting the upside potential for corn is a large amount of old crop corn that has quality issues. Export business was quiet this week with no private sales reported by the USDA. 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 next six weeks, 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.
Strategy and outlook: Producers should have hedges and/or cash sales 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.
Soybeans closed the week unchanged from last week. Commercial buying and early week short covering allowed soybeans to close the week unchanged. Growing conditions in South America remain nearly ideal as it has been warm with timely rain showers. Soybeans continue to be on pace to test key support at $8.92 before finding seasonal lows. The commercials are now holding a net long position while the sentiment index is at a bullish reading.
Strategy and outlook: Producers should have hedges/cash sales 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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