Market Snapshot, Noon CT (VIP) -- Advice -- April 3, 2013

April 3, 2013 07:03 AM
 

LIVESTOCK PRODUCERS: LIFT 2ND-QTR. FEED COVERAGE... Last week's USDA reports put heavy pressure on the corn and soybean meal markets. The inability of these markets to recover after the initial wave of post-report selling has us concerned more price pressure lies ahead. As a result, livestock producers are advised to lift the 25% 2nd-qtr. feed coverage in long July corn futures and long July soybean meal futures. The sharp price break will eventually give us an opportunity to extend feed coverage, but carry all risk in the cash market until there are solid signs the downside has been exhausted.

 

Corn futures weakened mid-morning, but are narrowly mixed heading into this afternoon.

  • Futures briefly firmed this morning on short-covering, but the corrective buying has faded.
  • Ethanol production the week ended March 29 improved 2,000 barrels per day from the previous week, but this is providing little support as the corn market has a long ways to go in order to signal a near-term low has been posted.
  • Funds have been very active sellers of corn on the recent price break and it appears they are on the sell side of the market again today.
  • The sharp price break has also triggered some Asian feed demand, most of the business is expected to go Brazil and Argentina.
  • Expectations for a big rebound in corn production this year continue to hang over new-crop futures and so far traders aren't concerned about possible planting delays.
  • Gulf basis softened 3 cents this morning to stand 53 cents above May futures and is unchanged from that level at midday.

 

Soybean futures have extended losses, with most contracts 17 to 20 cents lower.

  • Soybean futures are being pressured by a lack of bullish fundamental news and followthrough chart-based selling.
  • New-crop November beans are leading the decline and have dropped to its lowest level since July 24.
  • Demand concerns are also weighing on the market. Bird flu in China is sparking concerns of a reduction in demand for soybeans to process into soybean meal for feed.
  • Gulf soybean basis has firmed two cents to stand 75 cents over May futures to suggest some fresh demand has arrived.
  • But traders recognize the window for U.S. soybean exports is quickly closing and only expect scattered buying as focus turns to booking South American supplies.

 

Wheat futures are posting double-digit gains in many contracts at all three locations, with nearby Chicago futures leading the way.

  • Concerns about the HRW wheat crop in the Plains is providing support for the wheat market, as the crop has come out of dormancy in worse shape than traders expected.
  • While there is some rain in the forecast for the driest areas of the Central and Southern Plains, traders recognize it will take timely rain until harvest to improve yields.
  • There are also hopes for more demand for U.S. wheat. Indian wheat is priced well above U.S. wheat and China is considering more U.S. spring wheat purchases amid disappointment with the gluten content of Canadian spring wheat shipments.
  • Informa Economics reportedly pegs the U.S. winter wheat crop at 1.631 billion bu., which if realized, would be down 14 million bu. from last year.
  • Weakness in the U.S. dollar index is also encouraging corrective trade in wheat futures.

 

Cattle futures are narrowly mixed, with nearby contracts firmer amid short covering.

  • Price action remains light and choppy in live cattle futures as traders wait on direction from the cash cattle market.
  • With nearby live cattle contracts in line to below last week's cash trade, selling interest is limited and mild short-covering is being seen this morning.
  • Unless the boxed beef market strengthens, odds of higher cash cattle trade are not strong. Packers are struggling to move beef at high prices and margins are negative, prompting some talk processors may slow kill runs instead of paying higher prices for cash cattle.
  • Morning boxed beef trade resulted in firmer prices, but light movement of only 126 loads.
  • Feeder cattle futures have turned mostly firmer amid the drop in corn futures.

 

Lean hog futures have turned mixed, with nearby contracts marginally higher.

  • April lean hog futures have recovered from initial losses, but upside potential is being limited by the big premium the contract holds to the cash index.
  • Traders remain hopeful pork demand will improve as grilling season begins, but this week's lackluster pork cutout market doesn't reflect improved demand.
  • The pork cutout value dropped $1.05 yesterday on slow demand. While lower pork prices have tightened packers' margins, they remain modestly in the black, which is encouragement enough to keep kill lines running as full as possible.
  • Cash hog bids are steady at most locations, although some firmer bids are being reported in eastern locations.
     
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