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By Staff | Sep 24, 2010

On Sept. 17, the U.S. Department of Agriculture released its monthly cattle on feed report for the month of September.

The report is considered slightly bearish as placements came in above prereport trade estimates. Despite the rise in corn prices, feedlots continue to place cattle into feedyards.

Also negative for the market was the overall cattle inventory levels.

Cattle supplies are the third largest since 2000 and the fifth largest since records were kept starting in 1996. On feed supplies totaled 10.17 million head compared to 9.9 million head a year ago.

“Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.2 million head on Sept. 1,”?the USDA said. “The inventory was 3 percent above Sept. 1, 2009.”

Placements in feedlots during August totaled 2.27 million, 7 percent above 2009. Net placements were 2.22 million head. During August, placements of cattle and calves weighing less than 600 pounds were 495,000, 600-699 pounds were 395,000, 700-799 pounds were 565,000, and 800 pounds and greater were 815,000.

Marketings of fed cattle during August totaled 1.92 million, 7 percent above 2009.

Other disappearance totaled 47,000 during August, 16 percent below 2009.

Hoops analysis: This report will produce a negative reaction from the industry with the bears pointing to the large inventory levels as a reason to pressure the market.

Packers appear to be willing buyers on any price weakness and their buying interest should continue to support prices. Placement levels should begin to decrease as the price of feed continues to move higher, which will leave tight supplies in the future.

Normally when feed costs soar, deferred contracts will also rally as the higher deferred contracts will provide a price incentive for producers to continue to keep their feedlots full.

Corn analysis

Corn closed the week $.35 higher. Last week, the USDA did not report any private export sales.

Last week’s crop progress report showed harvest is picking up steam with 11 percent now harvested nationwide versus 6 percent harvested normally this time of year. Last year, there was only 3 percent harvested at this time.

Early yield reports are disappointing compared to a year ago, however the crop is more mature than last year.

The weekly export sales report showed net sales of 584,200 metric tons were down 88 percent from the previous week. This was a 3 1/2 month low as buyers backed away fearing high prices.

Increases were reported for Japan (255,900 MT, including 65,100 MT switched from unknown destinations and decreases of 2,300 MT), South Korea (223,800 MT, including 52,000 MT switched for Japan), China (74,500 MT, including 60,000 MT switched from Taiwan and 1,000 MT switched from unknown destinations), Syria (40,500 MT, including 34,000 MT switched from Egypt), Egypt (30,800 MT).

Strategy and outlook: Hedgers have sold/hedged a portion of the 2010 crop when December futures traded between $4 and $4.50. Producers should have also bought new crop put option protection on unmade sales. Producers can re-own sales and liquidate put options on any price weakness.

Soybean analysis

Soybeans closed the week $.38 higher from last week. Last week, the USDA reported private sales of 170,500 MT of soybeans to China, 21,000 tons of bean oil to Algeria and 67,000 tons of bean oil sold to an unknown destination. The NOPA August U.S. soybean crush rate was a strong 122.4 mb, down 1.7 mb from July, but up 9.8 mb from last year.

The weekly export sales report showed net sales of 668,600 MT were down 73 percent from the previous week. The primary destinations were China (339,700 MT), unknown destinations (146,100 MT), Indonesia (66,100 MT), Taiwan (39,700 MT), and Mexico (31,400 MT). Decreases were reported for Cuba (8,000 MT) and Guatemala (7,200 MT). Exports of 173,300 MT were primarily to China (60,200 MT), Mexico (33,400 MT), Syria (25,600 MT), Japan (24,100 MT), and Costa Rica (22,000 MT).

Strategy and outlook: Producers have sold/hedged the 2010 crop when November futures traded between $9.60 and $10.30. Producers should have put option protection on the unsold portion. Producers can liquidate put options and re-own cash sales on any price weakness. Making 2011 sales above $10.30 is a great place for next year’s marketing plan, but don’t become too aggressive until more is known about the 2011 marketing year.

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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