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BRIAN HOOPS

By Staff | Jul 13, 2012

CORN ANALYSIS

In a very strong week, corn closed the week $.22 3/4 higher. Last week, private exporters announced a sale of 110,500 metric tons of U.S. corn to Mexico. In the weekly export sales report, corn sales were only 0.3 million bushels for old crop with new crop at 5.3 mb. This was the seventh consecutive week for sales below 10 mb with nine weeks with sales below the average pace needed to reach the USDA forecast.

The weekly crop progress/conditions report showed U.S. corn conditions down 6 percent to 48 percent good-to-excellent. This year’s rating is now well below last year’s 69 percent. This is the lowest rated corn crop since 1988.

Iowa is rated at 62 percent g/e, while Nebraska is at 56 percent, Minnesota at 82 percent and eastern states of Illinois are at 26 percent, Indiana at19 percent and Ohio at 33 percent.

According to Informa, U.S. farmers will harvest 13.64 billion bushels of corn in 2012 and corn yields at 153.5 bushels per acre, based on harvested acreage of 88.9 million acres. Informa’s corn yield is 1.4 bushels below its previous forecast, but almost 10 bushels below Informa’s early season yield forecast.

Informa’s current corn yield is 12.5 bushels below the 166-bushel yield assumed by the U.S. Department of Agriculture in its June supply and demand report.

Informa’s July state yield forecasts were reduced in nearly 20 states from its early season trend with Kansas reduced the most, down 30 bushels. Other states where yield reductions drop below trend of up to 20 bushels were Indiana, Illinois, Missouri and Kentucky, Informa said in its report to traders.

Strategy and outlook: Producers are 40 percent of 2012/13 crop after making sales at $6.04 and $6.70 against December. Make a 10 percent sale at $7.40. Producers own the December 6.40 strike puts on 50% of production. Make a 10 percent sale of 2013/14 crop at $6.40 December.

SOYBEANS ANALYSIS

Soybeans closed the week $.54 1/2 higher from last week. Pivate exporters reported last week a sale of 1.19 million metric tons of U.S. soybeans to an unknown destination, the fifth largest soybean sale in history; plus 120,000 mt of soybeans to China and 35,000 mt of soybean oil sold to China.

In the weekly export sales report, soybean sales were an impressive 64.8 mb. This puts year-to-date sales at 1.383 bb, above the current USDA forecast of 1.335 bb.

Crop progress/conditions report showed the soybean crop at 45 percent g/e, down 8 percent from a week ago.

This is now the lowest-rated soybean crop of the last 25 years.

Iowa is at 59 percent, Minnesota at 74 percent, Nebraska at 45 percent, Illinois at 28 percent and Indiana at 20 percent.

Informa projects a U.S. soybean crop of 3.161 bb, with yields estimated at 42 bushels per acre, based on harvested acreage of 75.3 million acres. The July 1 soybean yield at 42 bpa is down 0.7 bushel from Informa’s previous forecast and would be 0.5 bushel above last year.

Informa tempered its yield forecast for several states due to this season’s below-average start.

Strategy and outlook: Producers are 40 percent sold of the 2012/13 production. Producers bought the November 1360 put options when November rallied to $13.95 on 50 percent of the 2012/13 production.

Sell 10 percent of the 2012/13 crop at $15.75 and roll puts to 1500 when sale is made. Make a 10 percent sale of 2013/14 at $13.60 against November.

LIVE CATTLE ANALYSIS

Live cattle ended the week $1.25 higher; while feeder cattle ended $4.92 lower.

Last week, cash trade developed in the South at $117, $1 higher compared with a week ago.

In Nebraska, trade developed at $188, steady compared with last week. Cattle futures are responding nicely to the CBOT report which highlighted a bullish setup for the market with the commercials index and the sentiment index in corresponding bullish positions. Supplies of cattle are expected to tighten into the summer which should provide a fundamental backdrop for higher cattle prices, which will develop a long-term hedging program as cattle placements are 15 percent more than a year ago.

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

LEAN HOGS ANALYSIS

Lean hogs closed the week $3.32 lower. The average Iowa-Minnesota hog weight for last week was estimated at 272.1 pounds versus 274.4 pounds the previous week and 268.3 pounds last year. Lean hog producers should be enjoying a summer rally as better demand trends have more than compensated for sluggish fundamentals.

Demand will be the key to the extended rally this summer as funds have slowly been covering their short positions due to the better technical picture of the market.

Funds are currently net long, but could add more positions if the technicals continue to move higher. Last year, a temporary summer high was made in August before prices retreated and then rallied to the highs of the year in October.

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

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc., 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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