Market Snapshot, Noon CT -- Advice (VIP) -- September 4, 2013

September 4, 2013 07:15 AM
 

LIVESTOCK PRODUCERS: COVER 25% OF 4TH- AND 1ST-QTR. MEAL NEEDS… After failing to take out the contract high yesterday, meal futures pulled back sharply this morning. With the soybean crop facing late-season weather stress, we view the modest price break as an opportunity to extend meal coverage. Livestock producers are advised to cover 25% of 4th-qtr. protein needs in long Dec. soybean meal futures and 25% of 1st-qtr. needs in long March meal futures. We'll look to add more long meal coverage on a deeper pullback as we feel prices are ultimately headed higher.

Livestock producers should also be prepared to add long corn coverage, although there isn't as much urgency in that market.

Corn futures have slumped 6 to 8 cents after attempting to trim early morning losses.

  • Traders' attitudes are decidedly bearish after USDA lowered the amount of corn rated "good" to "excellent" by only three percentage points in its weekly crop conditions report. That has traders thinking the U.S. will produce a record corn crop, even though weather continues to be dry and is trending toward higher temperatures.
  • Traders are also shrugging off a 9-point drop in the weighted Pro Farmer Crop Condition Index (0 to 500 point scale) to 346, with Iowa leading the decline.
  • Traders are also looking at spotty showers listed in the forecast that limit their worries about yield loss. But that forecast also calls for a heat to return the western Corn Belt starting today.
  • Traders are also ignoring lower production and yield estimates coming from private crop watchers. Earlier today Lanworth lowered its average yield forecast to 151.6 bu. per acre for a crop of 13.33 billion bu., down 76 million bu. from its last estimate.
  • Gulf basis dropped 10 cents for September delivery at midday, which is adding to the selling pressure.

 

Soybeans have trimmed mid-morning losses, but futures are still trading 20 to 30 cents lower amid bull-spread unwinding.

  • Traders moved aggressively to the sell side after USDA reported a four-percentage-point drop in the percentage of soybeans rated "good" to "excellent" yesterday. Funds have been active sellers, too.
  • The market is ignoring the 9-point drop on Pro Farmer's weighted Crop Condition Index (0 to 500 point scale), which slumped to 342.
  • Traders are shrugging off the unfavorable forecast for the late-maturing soybean crop. The forecast calls for record-setting heat, but it also hints at some light precipitation in some areas of the eastern Corn Belt this weekend.
  • The market is also ignoring the lower crop estimate from private crop watcher Allendale which says it expects a 39 bu. per acre soybean yield. In addition, Lanworth lowered its forecast to 40.4 bu. per acre yield for a crop of 3.114 billion bu., a 26 million bu. decline from last week.
  • Traders also worry the recent price runup will prompt South American soybean growers to increase intended plantings.
  • News China intends to auction more soybeans from state reserves in coming months is seen as negative for potential Chinese demand for U.S. beans.
  • Gulf basis slipped 1 cent for both October and November delivery in late-morning trading. Traders are reading that as a hint of price resistance from export buyers.

 

SRW, HRW and HRS wheat futures are 3 to 9 cents lower with the exception of front-month HRW and HRS contracts, which are 2 and 13 cents higher, respectively.

  • Wheat futures are lower on the widespread selloff in both corn and soybean futures.
  • Traders are also bearish on news Egypt made purchases of 180,000 MT of Russian and Romanian wheat in its tender. This confirms concerns U.S. wheat prices are not competitively priced on the world market.
  • Tuesday's crop progress update from USDA indicated HRS harvest has reached 64% complete as of Sunday, which should mean a decrease in harvest-related selling pressure.

 

Live cattle futures are slightly to moderately weaker while feeder cattle futures are moderately lower.

  • Live cattle futures are weaker as the market works to remove some of the $3-plus premium nearby live cattle contracts hold to last week's cash action at $123 in the Southern Plains.
  • Feedlots continue to look for higher cash bids due to a drop in the number of market-ready cattle, but packers have resisted the higher offers on concerns over consumer resistance to a rise in beef prices.
  • However, the market received positive news from the boxed beef trade this morning with Choice beef up 38 cents and Select up 29 cents on strong movement of 152 loads. This follows improved movement of 166 loads on Tuesday.
  • Weakness in live cattle futures is pressing feeder cattle futures lower despite the selloff in corn futures.

 

October through February lean hog futures are slightly to moderately higher, while later contracts are fractionally lower amid some bull spreading.

  • Nearby lean hog futures are higher on strong wholesale demand and technical buying after the market's high-range close yesterday.
  • Pork cutout values rose $1.53 this morning and movement is a very robust 353 loads, which is adding to packer cutout margins.
  • Cash prices are mixed today, with some locations paying up for supplies and others lowering bids.
  • Last week's intense heat trimmed average hog weights in southern Minnesota and Iowa by 1.4 lbs. the week ended Aug. 31. With record-setting heat expected to return to the upper Midwest this week, further delays in the normal seasonal rise in pork supplies is possible.
  • Traders continue to trim the $3 discount the October contract holds to the cash hog index, which is providing light support for October futures.
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