Roberts Report: Wet weather conditions support corn futures

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CORN futures on the Chicago Board of Trade (CBOT) finished up on Monday. The MAY’11 contract closed at $7.516 up 9.75¢/bu but 26.0¢/bu lower than last week at this time. The DEC’11 contract closed at $6.682; up 12.25¢/bu and 11.0¢/bu over last report. Corn futures were supported by bullish fund activity and wet weather conditions seen as delaying U.S. corn plantings amid short supplies. U.S. grain markets receded from highs last week after funds took profits selling 10,000 lots. On Monday the market was supported by funds buying over 12,000 contracts. According to several pit sources investors will now concentrate on weather during planting season as rain and snow continue to delay early crop seedings in the U.S. Midwest. This weather pattern is expected to continue for the next 10-14 days. Late Monday USDA released its crop progress report showing U.S. corn seedings at 7% vs. the 8% five-year average and 16% this time last year. Traders were expecting about an 8% planting progress number. Prospects for the tightest corn stocks in the U.S. since the 1930s are driving this corn market to record highs. Exports were neutral with USDA putting corn-inspected-for-export at 31.161 mi bu vs. expectations for 31-34 mi bu. Cash grain markets were quiet on Monday with purchasers taking a cautionary approach amid outlooks for a pickup in deliveries from farmers. They hope this will reduce cash prices at least in the short run. On the other hand, corn merchandisers are trying to buy as much corn as possible on concerns of tight supplies later in the summer. Buying in China is expected to slow due to China’s central bank once again raising the reserve requirements for the country’s banks, according to the People’s bank of China on its website Sunday. Expect prices to remain bullish and volatile on fundamentals amid technical buying and selling by large investors.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished up on Monday. The MAY’11 contract closed at $13.442/bu; up 12.5¢/bu but 24.25¢/bu lower than last Monday. NOV’11 soybean futures closed up 9.5¢/bu at $13.492/bu but 31.0¢/bu lower than last report. Pit sources said if weather keeps delaying corn plantings more acres might be planted to soybeans. Spillover strength from corn and wheat supported soybeans. Early price action was dominated by lower stocks and Standard & Poor’s revision of the U.S. credit outlook to negative from stable. S&P retained the U.S. credit rating at AAA but cited the lack of progress on a U.S. budget accord as a negative factor. Also weighing on soybeans was the higher bank reserve China imposed on its banks. This is seen as limiting prospects for U.S. soybean exports to that country. Exports are rated steady-to-weaker as late Monday USDA put soybeans-inspected-for-export at 14.207 mi bu vs. expectations for 19-21 mi bu. Cash soybean basis was unchanged for soybeans amid steady barge freight rates. Rates were steady on a higher demand push down to the Gulf even though fuel costs are higher. Elevator prices were steady-to-firm amid sluggish farmer sales. Funds were net buyers of 4,000 soybean contracts. Fundamentally soybeans remain bullish and prices will continue to be volatile on weather concerns and large investor trading.

WHEAT
futures in Chicago (CBOT) closed up on Monday. The MAY’11 wheat contract closed at $7.775/bu; up 30.75¢/bu but 20.75¢/bu lower than last report. JULY’11 futures finished up 30.75¢/bu at $8.106/bu but 21.0¢/bu lower than this time last week. Exports were supportive with USDA putting wheat-inspected-for-export at 35.705 mi bu vs. expectations for 28-32 mi bu. Gains in wheat offset selling pressure by funds on sharply lower crude oil futures and weak equities markets. Weather continues to be the story this time of year. Dry weather in the U.S. Plains where wheat is grown continues to support wheat prices. While the U.S. Plains struggled with lack of moisture, the U.S. Midwest was overly wet, delaying the start of corn seeding. Late Monday USDA put the U.S. wheat crop in good-to-excellent condition at 36%; unchanged from last week but sharply lower than this time last year when the combined good-to-excellent wheat crop condition was 69%. Notably, USDA raised the U.S. wheat crop condition in poor-to-very-poor condition to 38% from 36% last week and 6% this time last year. Meanwhile, a dry period in Britain, Germany, and France, and continued drought in China’s wheat producing areas raised concerns that global yield potential could be negatively affected. Floor sources said that traders are assessing the condition of crops in the Northern hemisphere after poor weather slashed global output last year. Weather markets are weighing in on futures now.

DAIRY CLASS III
futures on the Chicago Mercantile Exchange (CME) closed down slightly on Monday. The APR’11DA contract finished at $16.74/cwt; even with Friday’s close but $0.4/cwt lower than a week ago. JULY’11DA futures finished at $17.30/cwt; down $0.38/cwt and $0.69/cwt under last report. Exports continue to be the bright spot. USDA’s latest dairy trade report estimates February exports at $348 mi; up 4% from January and 55% more than February last year. Export volumes of milk powders were up 150% compared to a year ago amid brisk sales to Southeast Asia. Cheese exports in the first two months of 2011 totaled more than 85 mi lbs; equivalent to 5% of total U.S. cheese production for the same period and the highest percentage on record. February imports were estimated $214 mi; up about 2% from the previous period and about 8% more than a year ago. Through the first five months of fiscal 2011, exports were estimated at $1.7 bi; up 55% from a year ago while imports were estimated at $1.2 bi; up about 9% from the same period in FY 2010. For February, U.S. exports were equivalent to 13.4% of U.S. milk solids while imports represented just 2.6% of U.S. solids production. The result is a $516 mi trade surplus. Meanwhile, USDA in its latest Livestock, Dairy, and Poultry Outlook stated that feed prices will remain high near historic levels throughout 2011. However, milk production is expected to continue to rise, based on slightly higher cow numbers and increased output per cow. Corn prices are forecast at $5.20-$5.60/bu for 2010/11. Soybean meal prices are forecast to average $340-$360/ton. However, it is felt these prices are at least $1.50/bu to low. If corn, soybean, and wheat acres are expanded this situation could support higher alfalfa and hay prices. In summary, the outcome for dairy producers is most likely continued higher feed prices. Milk price forecasts will be higher this year than last, but the Class III price forecast was lowered slightly this month from March projections. The all milk price is forecast to average $18.15-$18.65/cwt for 2011 with Class III prices averaging $16.10-$16.60/cwt.

LIVE CATTLE
futures on the Chicago Mercantile Exchange (CME) finished up on Monday. The APR’11LC contract closed at $118.175/cwt, up $0.775/cwt but $0.85/cwt lower than a week ago. AUG’11LC futures closed at $117.300/cwt; up $0.050/cwt but $1.43/cwt down from last report. The DEC’11LC contract closed at $123.325/cwt; up $0.45/cwt. Cattle futures were mostly lower by mid-morning reacting to bearish economic news led by Standard and Poor’s downgrading of the U.S. credit rating. The downgrade knocked the stock market and crude oil sharply lower. However, cattle found strength near the close on renewed portfolio balancing by funds as they took money out of energy and bought commodities. USDA on Monday put choice boxed beef at $185.59/cwt; down $0.16/cwt and $3.70/cwt lower than last report. Cash cattle were weaker amid light volume. On Monday USDA put the 5-area average price at $119.10/cwt; $4.10/cwt lower than this time last week. Increasing prospects for higher gasoline are expected to slow food purchases and continue to weigh on demand. Cash cattle were supported by reports from the Plains that the number of cattle being offered this week will be down from last week. The general trend for this time of year is up. The reduced cattle number effects are showing up in the supply chain. According to HedgersEdge.com, the average packer margin was raised $3.60/head to a negative $26.95/head based on the average buy of $120.99/cwt vs. the average breakeven of $118.91/cwt.

FEEDER CATTLE at the CME closed higher on Monday with the exception of the May 2011 contract. APR’11FC futures finished at $132.625/cwt; up $0.475/cwt but $1.250/cwt lower than a week ago. The MAY’FC11 contract closed at $133.225/cwt; down $0.075/cwt on profit taking and spreading. The AUG’11FC contract settled at $136.875/cwt, up $0.350/cwt but $0.750/cwt under this time last week. Spillover strength from other commodities, large funds moving money from energies to commodities in a buying frenzy, and tight U.S. supply supported feeders. Cash cattle were steady-to-weak compared to last week. The Oklahoma City National Stockyards estimated Monday’s receipts at 12,500 head vs. 12,174 last week and 7,891 a year ago. At times feeder steers were $3/cwt lower while heifers were $2-2.5/cwt lower. Stocker cattle and calves were steady amid light volume. The latest CME feeder cattle index was placed at $133.72; down $0.65 and $2.35 lower than last report.

LEAN HOGS
on the CME closed mixed on Monday with deferreds past August 2011 closing down an average of $0.24/cwt. The JUNE’11LH contract closed at $101.275/cwt; up $0.200/cwt. AUG’11LH futures closed at $101.550/cwt; up $0.200/cwt and $0.70/cwt higher than last report. Hogs recovered most of their earlier losses, helped by higher pork prices. USDA put the pork cutout at $96.57/cwt; up $0.57/cwt and $2.29/cwt higher than last week at this time. This is the second highest it’s been behind the record of $96.74 set in August of 2010. Lean hog futures rallied along with other commodities on the benefit of cash movement from energy to commodities. Investors saw these food-based commodities as a good investment amid declines in stocks and gains in the U.S. dollar. Packer demand was steady-to-firm at most places trying to get ahead of the holiday demand. Some plants are planning to close operations on Good Friday while others will be closed on Monday in observance of the Easter holiday. According to HedgersEdge.com, the average packer margin was raised $1.65/head to a positive $2.50/head based on the average buy of $68.68/cwt vs. the average breakeven of $69.59/cwt. The latest CME lean hog index was placed at $93.81; up $0.59 and $2.58 over last report.



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