In a very volatile week, corn closed the week $.02 1/2 lower. Last week, private exporters reported 120,000 metric tons of corn sold to China and 120,000 mt of corn sold to an unknown destination.
In the weekly export sales report, corn sales were 6.2 million bushels versus 16.7 mb needed weekly to hit the USDA forecast of 1.7 billion bushels. This was a marketing year low sales figure for corn. Corn acreage jumped to 95.9 million, up 4 million acres from a year ago and above the average trade guess of 94.51 million.
This is the largest U.S. corn acres since 1937. However, quarterly stocks, which should be more important than planted acreage in this report, came in below trade estimates at 6.01 bb. This suggests better old crop corn usage than expected and should be very supportive to trade.
Strategy and outlook: Producers should have 80 percent of 2011/12 crop production sold. Producers made a 30 percent sale at $6.73 last week.
New crop sales should begin at $6.05 with a 20 percent sale and buy the December 6.00 strike puts on 50 percent of production.
If inclined, sell the December 8.00 strike calls to help pay for the cost of the puts.
Soybeans closed the week $.37 1/4 higher from last week. Last week, private exporters reported sales of 240,000 mt of U.S. soybeans to China and 120,000 mt soybeans to an unknown destination.
In the weekly export sales report, soybean sales were 21.7 mb vs. 5.9 mb needed to reach the USDA forecast of 1.275 bb. With corn acres being so large, the soybean acreage is lower than expected and the lower acres is bullish for soybeans.
Soybeans acres are forecast at 73.9 million, below the average trade guess of 75.13 million.
Quarterly stocks were near pre-report estimates at 1.37 bb. With ending stocks already so tight for soybeans, the growing season for soybeans will need to be nearly perfect to keep soybean stocks from tightening even further.
Strategy and outlook: Producers have now sold 100 percent of the 2011/12 crop after making sales at $14.12 last week. Producers sold 20 percent of the 2012/13 production at $13.65 on a hedge-to-arrive contract against the November contract, bringing sales for the 2012/13 marketing year to 30 percent.
Producers should purchase November 1360 put options when November rallies to $13.95 on 50 percent of the 2012/13 production. If inclined, sell the 1600 calls to cheapen the cost of the puts.
LIVE CATTLE ANALYSIS
Live cattle ended the week $4.05 lower while feeder cattle ended $3.60 lower. Last week, cash cattle trade was reported in the North at mostly $200, steady compared to last week while trade in the South was $125, $2 lower compared with the previous week.
Cattle have seen a sharp drop in the futures during the month of April. This is seasonal and should not be unexpected by traders. The bottom may be more difficult to pick.
There is no doubt cattle are being pulled forward due to great weather, which should further deplete the supply of cattle from April going forward. This is the primary reason why we lifted hedges on a sharp pullback into support. The weekly charts are nearly weekly uptrend line support, which needs to and should hold given the tight supplies of cattle.
Strategy and outlook: Producers are hedged 50 percent of all production month. April is at $128.62; June at $126.65 and August at $126.45.
Feed costs should be covered in corn futures/options or cash product through July. Producers lifted hedges when April fell to the open gap area of $122.
LEAN HOGS ANALYSIS
Lean hogs closed the week $3.60 lower. The average Iowa-Minnesota hog weight for last week was estimated at 276.6 pounds versus 277.3 lbs the previous week and 274.1 lbs last year.
In the quarterly hog and pig report, the USDA forecast U.S. inventory of all hogs and pigs on March 1 was 64.9 million head. This was up 2 percent from March 1, 2011, but down 2 percent from December 1, 2011.
Breeding inventory, at 5.82 million head, was up 1 percent from last year, and up slightly from the previous quarter. Market hog inventory, at 59.1 million head, was up 2 percent from last year, but down 2 percent from last quarter.
Strategy and outlook: Producers have hedge coverage of 50 percent in all months of production. April is hedged at $94.55; June is hedged at $100.60; July is hedged at $98.92 and August is hedged at $97. They also removed all hedges when April futures hit $83.05. 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. He can be contacted at 605-660-1155.
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