On March 20, the USDA released the March Cattle on Feed report. The report held few, if any, surprises for the market. The actual numbers from the USDA closely reflected the average, pre-report trade guesses. The market has been very bullish for the last several weeks, with futures, led by the April contract, hitting 17 month highs and the cash trade rising to well above 2009 levels.
This report does not indicate anything that would change the trend of the cash or the futures. The USDA reported cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.9 million head on March 1.
The inventory was 3 percent below March 1, 2009. Total cattle on feed as of March 1 came in at 10.8 million head. Placements in feedlots during February totaled 1.67 million, 1 percent below 2009. Net placements were 1.6 million head. During February, placements of cattle and calves weighing less than 600 pounds were 320,000, 600-699 pounds were 365,000, 700-799 pounds were 520,000, and 800 pounds and greater were 460,000.
Placements of cattle were discouraged by harsh winter weather.
Marketings of fed cattle during February totaled 1.72 million, 2 percent above 2009. Feedlot owners were aggressive in moving cattle out of feedlots rather than face unfavorable weather conditions and incurring additional feed and yardage expenses. Strong rallies in the cash market, gave producers a favorable profit margin and made decisions to sell that much easier.
Historically, in years of adverse weather conditions, seasonal highs are scored on average, four weeks after the normal seasonal highs are made. This would effectively put the seasonal highs for this year during the last week of March.
Corn closed the week $.10 1/4 higher. The market is starting to anticipate a delayed start to the planting season as a heavy snow cap and forecasts for a wet spring are providing support. Texas has started planting and they are behind their normal pace. Texas is 11 percent seeded versus the average of 28 percent. The Informa acreage estimate is consistent with what we have heard from our clients as they will slightly increase corn acres, but want to maintain their normal corn/soybean rotation. The market will need to give an incentive to farmers to increase seeded acres this spring.
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. The weekly export sales report showed net sales of 747,600 metric tons for delivery in 2009/10 were up noticeably from the previous week and 21 percent from the prior four-week average. Increases were reported for Japan (424,800 MT, including 114,700 MT switched from unknown destinations and decreases of 15,400 MT), South Korea (413,200 MT, including 239,100 MT switched from unknown destinations), Taiwan (193,300 MT) and Mexico (110,000 MT). This year’s export profile is now at 1.3 billion bushels versus the USDA forecast of 1.9 bb.
Strategy and outlook: Producers should have hedges/cash sales up to the 70 percent level. Producers should have purchased 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. Next sales objectives for corn producers are 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 $.36 1/4 higher from last week. February NOPA soybean crush was reported at 148.4 million bushels, solidly above average expectations of 144.5 million bushels (141-145 million range), and was up 15 percent from year ago February crush of 128.7 million. Obviously crush last month was down solidly from January crush of 162.4 million bushels due to the short month.
However, February crush was record large for the month, and the better than expected crush is a bit surprising given the poor product domestic usage of late. Argentine soybean harvest is 10 percent completed with the average yield of 50 bushels/acre. This is a full six bushels per acre better than the record U.S. crop of 2009.
Informa’s acreage estimate looks accurate considering farmers desire to maintain a consistent rotation between corn and soybeans. The weekly export sales report showed net sales reductions of 214,100 MT for delivery in 2009/10 were down noticeably from the previous week, but up 68 percent from the prior four-week average. Increases reported for Indonesia (95,200 MT, including 65,000 MT switched from unknown destinations and decreases of 8,800 MT), the Netherlands (57,000 MT, switched from unknown destinations), Japan (42,400 MT, including 19,500 MT switched from unknown destinations and decreases of 800 MT) and Mexico (24,600 MT). This year’s export profile remains well ahead of last year’s record pace at 1.322.1 bb vs. the USDA forecast of 1.420 bb.
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. Producers should have purchased July options on a pullback into a support level. Producers have sold 2010 crop when November futures traded above $10.30 and should wait patiently for a rally to make new sales and purchase 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.
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