Corn closed the week $.33 higher. Last week, private exporters reported a sale of 822,900 metric tons of corn to Mexico.
Last week, the USDA reported 2011 U.S. corn good-to-excellent ratings were 67 percent, up 4 percent from last week. Last year, 76 percent of the crop was rated g/e.
The June supply/demand report was bullish to corn with the USDA not only forecasting U.S. farmers would plant 1.5 million less acres this year than the March intentions, but farmers would harvest 1.9 million fewer acres of corn.
With a yield of 158.7 bushels per acre, this would produce a crop of 13.2 billion bushels, 50 million bushels less than projected demand of 13.255 bb. Ending stocks are forecast at only 695 mb.
World stocks fell to just 111.9 million metric tons, down 709 mt from the May estimate. The USDA likely was trying to be proactive in cutting harvested acres and will be forced to address this further in the June acreage report.
Even with the third best corn yield in history, the corn industry faces another year of demand rationing.
Strategy and outlook: Producers and are now sold/hedged on 80 percent of the 2010 crop and re-owned 35 percent of sales/hedges with at-the-money July call options after rolling up March and May calls. Look to exit these options next week. Producers should have 30 percent of new crop production sold. Make another old and new crop 10 percent sale at $8.47. From a time stand point, producers are advised to buy downside protection with put options prior to the June acreage report.
Soybeans closed the week $.27 1/4 lower from last week. Last week, private exporters did not report any private sales.
The USDA reported U.S. soybean seeding progress last week at 68 percent done, behind the average pace of 82 percent.
The June USDA supply/demand report was slightly bearish for soybeans with the USDA making no adjustments to soybean acreage, while placing new crop ending stocks at a little larger than last month. Stocks were estimated at 190 mb, 30 mb above the May forecast of 160 mb and above the average trade guess.
World stocks were essentially unchanged at 61.59 mts. While the USDA did not make any changes to the soybean acreage in this report, the trade is starting to anticipate the USDA will increase acreage in the June 30 report with corn acres already being reduced. Some of the corn acres will not be able to be planted due to flooding, however there will be some wheat and corn acres switched to beans as weather allows.
Strategy and outlook: Producers have sold/hedged 70 percent of the 2010 crop and re-owned 35 percent of sales/hedges with at-the-money July call options after rolling up March and May calls. Look to exit these calls next week as they are close to expiration.
Producers should have 30 percent of new crop production sold. Make another 10 percent sale of old and new crop at $15.07.
LIVE CATTLE ANALYSIS
Live cattle ended the week $1.62 lower, while feeder cattle ended $.62 lower. Last week, cash cattle trade was reported in the North at $173, $3 higher compared to last week while trade in the South was $105, $1 higher compared with the previous week.
Feeder cattle in Oklahoma City sold $1 to $3 higher. Commercials have become very aggressive buyers of futures contracts as they likely believe futures have corrected enough off their highs and are nearing the long term uptrend line on the weekly charts. Seasonally, lows are normally formed by August.
Strategy and outlook: Producers were advised to make their first round of 2011 inventory hedges when the market advanced to the $108 and $113. Target of $122 was nearly achieved against the June contract. Producers were also advised to make hedges in feeder cattle at that time as well. Feed costs should be covered in corn futures/options or cash product through the 2011 growing season.
LEAN HOGS ANALYSIS
Lean hogs closed the week $5.37 higher. Futures failed at technical resistance and turned lower, following a softer cash market and following a falling live cattle market. Pork product values are sliding, adding to the idea that futures are overbought.
Commercials are becoming very bullish to the hog market, exceeding their bullish positions that ignited a rally that started in November and December of last year.
Strategy and outlook: Producers have extended hedges against the June contract to 50 percent coverage at $101.25.
All feed costs should be locked in as well.
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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