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BRAIN HOOPS

By Staff | Jun 13, 2014

According to a survey of lenders by the Chicago Federal Reserve Bank, land rents are headed lower.

Most experts had predicted a greater lag between land value decreases and rents.

Cash rents in the Chicago Fed district posted a 2 percent decline for 2014, compared to last year, the first average decrease since 1999 and the largest decrease since 1987.

Illinois registered the largest decline at 4 percent; Iowa rents fell 3 percent; and Indiana, Michigan and Wisconsin land rents saw a 1 percent decline.

Adjusting for inflation, cash rental rates decreased about 4 percent, only the second negative result in the past decade using this measure.

Costs are not going down. The Kansas City Fed reports input expenses for corn, soybeans and wheat are not expected to moderate from year-ago levels.

Feeder calf price climbs

Feeder calves rallied to new highs in the past month. South Dakota State University Extension economist Darrell Mark said that’s good news for cow/calf producers, but, feedlots are

seeing red ink.

Seven hundred and fifty-pound steers cost about $1,500 per head. With end prices in October at $140 per hundredweight, Mark said that leaves only $400 to add 600 pounds.

“That animal, if placed in a feed yard right now,” he said, “would probably lose about $110 per head.”

Mark said putting those calves on grass puts the numbers back in the black, at about $15 per head profit, but, finishing those calves looks highly unprofitable.

With the negative margins, Mark thinks most feedlots may wait for the new crop of calves this fall.

CORN ANALYSIS

Corn closed the week 6.75 cents lower.

Last week, private exporters did not announce any private sales.

Weekly export sales of corn showed a total of 28.1 million bushels.

The USDA reported the first crop conditions of the season with 76 percent of the crop is in the good/excellent category versus 63 percent last year and 70 percent on average.

This year’s rating is the third highest on record. Corn was 95 percent planted versus 94 percent on average. Emergence was 80 percent, right on the average.

Unplanted corn in North Dakota, Wisconsin, Minnesota and Michigan is estimated at 2 million acres.

During June, the outlook for prices is simple as weather and how it impacts the emerging crops will be 95 percent of the pricing movement.

The only other supply side news the market will deal is the June 11 USDA monthly supply/demand crop report.

The market will want to be bullish as the key pollination time period is directly ahead of the market.

However, it will take weather concerns during June to ignite a rally.

Producers will want to use options as a way to manage risk and provide price insurance. This will enable producers to make sales and cover the upside if weather is adverse.

The end of the month will also have the quarterly stocks and planting intentions report from the USDA.

This report could be a shocker to the market as some reports have farmers decreasing seeded acres from the last report in March due to some farmer replanting in the Midwest.

Seasonal highs are usually formed by June 23.

Strategy and outlook: Producers are 100 percent sold of 2013/14 crop.

Producers are 25 percent sold of the 2014/15 crop and own 480 puts on 50 percent of the crop.

They bought out-of-the-money December calls on 25 percent of sales as insurance.

SOYBEANS ANALYSIS

Soybeans closed the week 33.75 cents lower.

Last week, private exporters announced a sale of 40,000 metric tons of bean oil to an unknown destination.

Weekly export sales of soybeans showed 2.2 mb for old crop and 30.2 mb for new crop sales.

In the weekly crop progress report, soybean planting in the U.S. is estimated at 78 percent complete versus 70 percent on average.

Emergence is 50 percent, ahead of the 45 percent average. The month of June looks to be similar to corn as we are in a weather market and forecasts will be the primary driving force.

The crop looks to be seeded before June 15 leaving beans to spend the rest of June developing root systems.

Rains after June 15 will be viewed as beneficial to crop development and negative for prices.

However, dryness in the month of June will send prices sharply higher.

Demand has remained strong for U.S. beans as the soybean crops in Argentina and Brazil have been harvested and the unsold portion will be sold.

Since the soybeans are now in storage, China has returned as a strong buyer of U.S. soybeans.

This strong buying has cut into old crop ending stocks leaving U.S. stocks at only 130 mb, according to the May USDA report.

The month of June is not the key reproductive month for soybeans, however, the market will be quick to add a premium into prices on less-than-ideal weather.

The acreage report at the end of the month could be a shocker to the trade. The market has already anticipated a record seeded acreage, however, if producers planted more acres to corn than previously thought, prices could find strength after the report’s release.

Seasonal highs are usually formed by June 23.

Strategy and outlook: Producers are 100 percent sold of the 2013/14 crop. Producers are 25 percent sold of 2014/15 production.

They should sell another 10 percent at $13.10 against March 2015.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.

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