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BRIAN HOOPS

By Staff | Dec 24, 2010

On Friday, the USDA updated its cattle on feed report to reflect the latest cattle inventories. The report was expected to be slightly bearish as traders had expected feedlots to increase their inventory levels going into the winter months.

Record high back month premiums have encouraged the feedlots to increase their inventory levels and place cattle into feedlots. If producers have adequately secured feed costs, they should be able maintain profitability levels.

The USDA reported U.S. feedlots boosted purchases of young cattle by 6.2 percent in November, more than forecast by the pre-report estimates. Feedlots bought 1.958 million head of cattle last month, up from 1.844 million in November 2009.

Fourteen analysts surveyed by Bloomberg News projected a 4.9 percent increase, on average.

The total feedlot herd was 11.609 million as of Dec. 1, up 2.9 percent from a year earlier and the highest for the date since 2007, the USDA said. Analysts expected a 2.6 percent jump.

Placements in feedlots during November totaled 1.96 million, up 6 percent from 2009. Net placements were 1.90 million head. During the month of November, placements of cattle and calves weighing less than 600 pounds were 625,000 head, 600 to 699 pounds were 590,000 head, 700 to 799 pounds were 373,000 head and 800 pounds and greater were 370,000 head.

Marketing of fed cattle during November 1.77 million head, up 9 percent compared to 2009.

2011 acreage estimates

Analytical firm Informa Economics forecast that U.S. farmers will plant 90.755 million acres of corn and 77.565 million acres of soybeans in 2011, trade sources said Friday. The firm estimated U.S. winter wheat plantings for 2011 at 39.502 million acres and U.S. upland cotton plantings at 12.805 million acres.

Last month, Informa forecast 2011 corn plantings at 93.1 million acres, soybeans at 75.8 million and U.S. all-wheat acreage at 56.1 million.

Informa also adjusted its U.S. 2010 crop production estimates. The firm pegged U.S. 2010 corn output at 12.54 billion bushels and soybean production at 3.380 billion bushels.

These numbers compare to 12.54 and 3.375, respectively, for USDA’s November levels and about 50 million lower than Informa’s November forecast.

Corn analysis

Corn closed the week $.22 1/4 higher. Last week, private exporters did not report any sales. The weekly export sales report showed net sales of 810,900 metric tons were up 21 percent from the previous week and 16 percent from the prior four-week average.

Increases were reported for Mexico (392,700 MT), Japan (161,900 MT, including 110,500 MT switched from unknown destinations and decreases of 9,200 MT), South Korea (69,200 MT, including 58,000 MT switched from unknown destinations and decreases of 8,000 MT), Israel (43,500 MT), and the Dominican Republic (28,500 MT, including 16,000 MT switched from Venezuela).

This year’s net export profile is now at 959 million bushels versus the USDA forecast of 1.950 billion bushels.

Strategy and outlook: Going into the January crop report, the down side is likely limited as end users should be buyers on weakness.

Farmers will not be too willing to part with inventory until after the crop report.

Soybean analysis

Soybeans closed the week $.25 3/4 higher from last week. Last week, private exporters reported sales of 110,000 MT of soybeans to China. NOPA released crush statistics for the month of November. Members reported a disappointing monthly crush of 148.9 mb, down nearly 3 mb from October and 11 mb less than a year ago.

The weekly export sales report showed net sales of 84,600 MT resulted as increases for China (126,500 MT, including 117,800 MT switched from unknown destinations and decreases of 191,400 MT), Japan (47,600 MT, including 18,000 MT switched from unknown destinations and decreases of 500 MT), Israel (27,300 MT), Russia (25,000 MT) and Indonesia (22,900 MT), were partially offset by decreases for unknown destinations (173,500 MT), Greece (38,000 MT) and Tunisia (30,000 MT). Net sales of 89,000 MT for delivery in 2011/12 were for China (55,000 MT) and Mexico (34,000 MT).

This year’s export pace stands at 1.230 bb versus the USDA forecast of 1.570 bb.

Strategy and outlook: Weather forecasts in South America will be closely watched for price direction.

Soybeans have major chart support near $12 which will only be broken if Argentina receives major rainfall amounts as that country has been extremely dry. Major upside potential exists if weather turns hot and dry in Brazil.

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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