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BRIAN HOOPS

By Staff | May 25, 2012

In a very volatile week, corn closed the week $.54 1/2 higher. Private exporters announced sale of 240,000 metric tons of corn sold to China and allocated a previous sale of 660,000 mt of corn from an unknown destination to China.

In the weekly export sales report, corn sales were 34.1 million bushels versus 13.1 mb needed weekly to hit the USDA forecast of 1.7 billion bushels.

In the weekly crop progress report, corn seedings advanced to 87 percent completed, above estimates and faster compared to last year’s corn planting pace of 66 percent.

Emergence was estimated at 56 percent, well above the average pace of 28 percent. Dry weather forecasts are starting to rally the corn market.

As we highlighted in the Market Insider Trade Alert Newsletter, this market could be explosive this summer as the weather cycle suggests a hotter and drier period of weather during the rest of May and through June.

Producers should finish up old crop sales on this rally and look to reward the rally with new crop sales as well, as this is likely the last rally until we get to harvest unless the entire Midwest experiences a drought.

Strategy and outlook: Producers should have 80 percent of 2011/12 crop production sold. Finish old crop sales at $6.45 July. Producers own the December 5.40 strike puts on 50 percent of production.

If inclined, producers sold the December 7.00 strike calls to help pay for the cost of the puts. Lift the put/call spreads on a move below $5 in the December contract.

SOYBEANS ANALYSIS

Soybeans closed the week $.01 lower from last week. Last week, private exporters reported a sale of 480,000 mt of soybeans to China.

In the weekly export sales report, soybean sales were 24.7 mb vs 2.8 mb needed to reach the USDA forecast of 1.315 bb.

Soybean planting progress is at 46 percent done versus the average of 24 percent.

In the monthly NOPA crush report, April soybean crush was reported at 131.7 mb, down from March crush of 140.5 mb, but still nearly 9 percent above last year’s 121.3 mb and was marginally above market expectations of 131.1 mb.

The overall range of ideas for April crush was 128.5 to 135.3 mb, so the reported level fell right in line with overall expectations. Marketing year-to-date crush of 1.09 bb is nearly identical to last year’s 1.096 bb as of April.

Estimates of an increase of 2 to 2.5 million acres of soybeans are being talked about thanks to double cropping after the winter wheat harvest.

Strategy and outlook: Producers are 100 percent sold of the 2011/12 crop and are 30 percent sold of the 2012/13 production.

Producers bought the November 1360 put options on 50 percent of the 2012/13 production when November rallied to $13.95.

If producers felt inclined, they sold the 1600 calls to cheapen the cost of the puts.

LIVE CATTLE ANALYSIS

Live cattle ended the week $4.37 higher, while feeder cattle ended $3.22 higher.

Last week, cash cattle trade was reported in the North at mostly $195, $1 higher compared to last week, while trade in the South was $120, $1 higher compared with the previous week.

Cattle and calves on feed for slaughter market in the U.S. for feedlots with capacity of 1,000 or more head totaled 11.1 million head on May 1.

The inventory was 1 percent below May 1, 2011. Placements in feedlots during April totaled 1.52 million, 15 percent below 2011.

Net placements were 1.44 million head. During April, placements of cattle and calves weighing less than 600 pounds were 355,000, 600-699 pounds were 250,000, 700-799 pounds were 380,000, and 800 pounds and greater were 536,000.

Marketings of fed cattle during April totaled 1.82 million, slightly above 2011.

Strategy and outlook: Producers currently have no hedges in place. Feed costs should be covered in corn futures/options or cash product through July, 2012.

Producers should buy December corn calls on a move below $5 to extend coverage through the harvest.

LEAN HOGS ANALYSIS

Lean hogs closed the week $1.57 higher. The average Iowa-Minnesota hog weight for last week was estimated at 276.5 pounds versus 276.7 pounds the previous week and 270.8 pounds last year.

Hog futures are trying to rally off of weekly support that has held since early 2011. Commercial accounts continue to add to their bullish expectations as they continue to accumulate long positions. Obviously, they are anticipating a strong summer rally.

This should encourage producers to be patient in their marketing efforts until prices have rallied.

Strategy and outlook: Producers currently have no hedges in place. Feed costs should be covered in corn futures/options or cash product through July, 2012. Producers should buy December corn calls on a move below $5 to extend coverage through the harvest.

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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