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BRIAN HOOPS

By Staff | Mar 29, 2013

The second quarter of 2013 should be a timeframe of price appreciation for the livestock markets.

Certainly the first quarter has been a bearish timeframe for the livestock sector.

Cattle producers have lost approximately 9 percent of their value, while lean hog producers have seen an erosion of approximately 13 percent of equity during the 1st quarter of 2013.

According to the March cold storage report, total red meat supplies in freezers were up 3 percent from both the previous month and last year. Total pounds of beef in freezers were up 1 percent from the previous month and up 4 percent from last year.

Frozen pork supplies were up 5 percent from the previous month and up 2 percent from last year.

Stocks of pork bellies were up 17 percent from last month, but down 31 percent from last year. This indicates supplies are increasing as commercials’ interests and end users are stocking up supplies ahead of summer grilling season in anticipation that demand for pork and beef will increase due to cheaper prices and the normal upswing in summer demand.

The increase in demand will come at a time when supplies of cattle are shrinking. The March cattle on feed report showed on feed supplies are down 7 percent from a year ago.

USDA reported cattle and calves on feed for slaughter in the United States, for feedlots with capacity of 1,000 head or more, totaled 10.9 million head on March 1, which is 7 percent below March 1, 2012.

Placements during February totaled 1.48 million, 14 percent below 2012. Net placements were 1.42 million head.

During February, placements of cattle and calves weighing less than 600 pounds were 355,000, 600-699 pounds were 270,000, 700-799 pounds were 407,000, and 800 pounds and greater were 450,000.

Placements are the lowest for February since the series began in 1996. Fed cattle marketing during February totaled 1.64 million, 7 percent below 2012.

Additionally, it’s the funds that have been pressuring the market with their relentless selling as the technical trend has remained lower.

The funds, normally trend followers, are holding net short positions in the lean hogs and live cattle. Once the technical downtrend is broken, the funds will begin to cover these shorts by buying contracts. Their buying of short positions will be the technical catalyst for a large move higher into the summer.

CORN ANALYSIS

Corn closed the week $.09 1/4 higher. Last week, private exporters did not report any private sales.

In the weekly export sales report, corn sales shows 10.8 million bushels slated for 2012/13. This is above the 9.7 mb that is needed to stay on pace with the USDA forecasts of 825 mb.

Texas corn plantings jumped to 42 percent, complete from 29 percent last week. This is well ahead of last year’s pace of 31 percent and the average pace of 33 percent.

Southern producers are taking advantage of early planting conditions with Louisiana at 56 percent seeded, Mississippi at 13 percent done and Georgia at 5 percent.

For now, resistance should hold as demand is extremely weak. It will take a long time to rebuild this export demand and unless another major producing country has a production problem, lower prices will be needed to improve demand for U.S. corn products.

Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop. They re-owned 50 percent of the 2012/13 corn crop with July calls.

SOYBEANS ANALYSIS

Soybeans closed the week $.14 1/2 higher from last week. Last week, private exporters did not announce any private sales.

In the weekly export sales report, soybean sales were 12.6 mb. This is well above the 1.6 mb that is needed to stay on pace with the current USDA forecast of 1.345 billion bushels.

Soybeans remain locked into a trading range of $14.95 on the upside and $14.05 on the downside.

With the strong demand trends and the spring growing season approaching, a move above $14.95 seems likely with $15.70 the next major resistance for the soybean market.

South American hedge pressure is picking up as harvest in Argentina and Brazil gains momentum. This should limit the upside until the spring growing season is able to rally the market.

Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. They will re-own 50 percent of 2012/13 production with July soybean calls if July futures hit $13.75.

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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