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BRIAN HOOPS

By Staff | Jun 24, 2010

Last Friday, the USDA released the monthly Cattle on Feed Report for the month of June. The report is generally considered neutral, as it almost exactly matched pre-report estimates, to negative as placements increased for the third consecutive month compared to a year ago.

In addition, this was the first month that total cattle on feed supplies did increase over the prior year for the first month in 2010.

Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.5 million head on June 1, 2010. The inventory was 1 percent above June 1, 2009.

Placements in feedlots during May totaled 2.02 million, 23 percent above 2009. Net placements were 1.92 million head. During May, placements of cattle and calves weighing less than 600 pounds were 445,000, 600-699 pounds were 405,000, 700-799 pounds were 537,000, and 800 pounds and greater were 635,000.

Placements in all the major beef producing states increased compared to a year ago with Oklahoma placements up 39 percent, Texas up 36 percent, Nebraska placements up 23% and a 22 percent increase in Kansas.

Placements of calves under 600 pounds increased by 12 percent compared to a year ago to 445,000 head. This is a record large placement figure for calves under 600 pounds. Placements during June are also expected to be large.

Marketing of fed cattle during May totaled 1.87 million, 4 percent below 2009. This is the lowest fed cattle marketing volume for the month of May since the series began in 1996.

Other disappearance totaled 102,000 during May, 1 percent above 2009.

Corn analysis

Corn closed the week $.11 1/4 higher.

Last week’s crop progress report showed national good-to-excellent ratings were 77 percent, 1 percent higher compared to a week ago. This is the highest corn conditions for this time of year in history. Iowa is rated 76 percent g/e, Nebraska 81 percent, Minnesota 94 percent, Illinois 72 percent and Indiana at 70 percent. Only 5 percent of the crop is rated either poor or very poor.

Last year’s ratings were 70 percent g/e and only 5 percent p/vp. The big question is, can ratings hold these levels during the growing season?

With the crop the highest rated in over 30 years and seasonal highs forming in corn and soybeans, the possibility of a sharp drop in corn values seems strong. The USDA is likely to lower feed usage in the quarterly stocks report, combine that with a record large crop and ending stocks could easily swell to over 2 bb. This is especially bearish with the weak overseas economies. Seasonally, corn has sold off from June 18 through July 27, 13 of the last 15 years and average of 44 cents. The last three years sell off has been an average of $1.21. By the end of July, December corn could be below $3.30.

Strategy and outlook: Producers should be 100 percent sold in cash/hedges for the 2009 crop. Producers should have purchased July options on a pullback into a support level on a portion of their 2009 production. Hedgers have sold a portion of the 2010 crop when December futures traded above $4.50. Next sales objectives for corn producers is between $3.80 and $4.00. Producers should look at buying new crop put option protection at this level.

Soybean analysis

Soybeans closed the week $.14 3/4 higher from last week. Last week, the NOPA May soybean crush was reported at 127.8 million bushels, solidly below expectations of 130.2 million (123.2-135.0 million range) and represented a 10 percent decline from a year ago May crush of 142.2 million. This is the second consecutive month of crush below year ago levels and the slowest May crush since 2003.

Seasonal downtime was expected to result in reduced crush, but the reduction was more than expected, and was down from April’s 131.7 million, as well.

Marketing year-to-date NOPA crush is now at 1.307 bb versus 1.219 bb last year, up 7 percent, while the USDA’s 2009/10 estimate of 1.74 bb represents a 4.7 percent increase from last year.

Strategy and outlook: Producers should be 100% percent sold in cash/hedges in the 2009 crop. Producers should have purchased July options on a pullback into a support level to re-own a portion of their 2009 production.

Producers have sold 2010 crop when November futures traded above $10.30 and at the $9.87 level. The next sales objectives for producers is $9.45 to $9.62. Producers should look at buying new crop put option protection at this level.

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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