June 30 USDA Reports Prove to be Major Market Movers

Two major market-moving reports were released today in the Quarterly Grain Stock Report and the Acreage report. There were no big surprises in the acreage report with respect to corn. Planted corn acres are estimated to be 91.64 million acres, a 50,000 acre decrease from the prospective plantings report. Pre-report trade estimates were expecting a slight increase in corn acres, but the final number was well within the range of expectations. Mississippi’s planted acres were revised down by 40,000 acres compared to the March Prospective Plantings report. Among the states with the largest declines in acreage are Iowa and Kansas with 400,000 and 300,000 fewer acres, respectively while Indiana and Missouri each have an increase of 200,000 acres. The quarterly grain stocks report has corn stocks as of June 1, 2014 estimated to be at 3.85 billion bushels, 39% higher than a year ago and toward the high end of the range of pre-report expectations. The weekly crop progress report was also released today, and the condition of the U.S. crop continues to look good with 75% of the crop rated in good or excellent condition. Mississippi’s corn crop is rated 70% good or excellent.

Soybeans had the biggest surprise with an estimated 84.839 million acres estimated to be planted. This marks a 3.3 million acre increase over the prospective plantings report released in March and is nearly 2.7 million acres higher than market expectations. Only two states saw a reduction in soybean acres from the March report, while most saw an increase in acres. The states with the largest increase in soybean acres are Illinois (600,000 acres), Iowa (500,000 acres), Kansas, and North Dakota (350,000 acres each). It appears that much of the increase in these states came at the expense of corn (Iowa and Kansas) or spring wheat (North Dakota) acres. Mississippi’s planted acres were revised up by 100,000 acres. Using the latest national yield estimate from the USDA, the increase in planted soybean acres would increase U.S. soybean production by just over 151 million bushels or about 4% higher than the current production estimate. So far, this has had a major impact on markets, with September futures losing 72 cents on the day, most of which came after the report’s release. U.S. soybean stocks are 7% lower than a year ago with 405 million bushels in storage as of June 1, 2014. As with corn, the soybean stock estimate falls toward the high end of the pre-report range of estimates. The U.S. soybean crop is currently rated at 73% good or excellent, while Mississippi’s soybean crop has 68% rated good or excellent.

Wheat acres were also slightly higher than expected with an estimated 56.474 million planted acres, about 660,000 acres more than March’s estimate but still falling within the range of pre-report estimates. The states with the biggest increases are South Dakota (300,000) and Montana (250,000) while North Dakota’s planted acres were decreased by 230,000 acres. Mississippi’s wheat acres were unchanged. Wheat stocks are down 18% from a year ago with just under 590 million bushels in storage. Mississippi’s wheat harvest is 92% complete while 43% of the U.S. wheat crop has been harvested.

For more detail on crop futures and Mississippi local cash prices click here. Detailed information on crop progress can be found here.

Cattle Market Notes: Week Ending Jun 27, 2014

Cash Cattle:

Cash fed cattle were higher this week, with both live and dressed nearing previous record highs set back in late-March. The five-area weighted average steer price for the week ended Friday was $151.35, up $2.31 from the previous Friday, and dressed steers averaged $236.38, up $5.52. Live cattle sold at $154-$155 in the Texas panhandle and Kansas. In Nebraska, live and dressed sales were reported at $154-$156 and $245, respectively. Sales in the Western Cornbelt were at $154 and $243-$245, respectively for live and dressed.

Feeder steers in Mississippi auctions this week were $5-$10 higher and feeder heifers were steady to $2.50 higher. Most all calves were steady. Cull cows and bulls were $5 higher. Feeders in Oklahoma City’s auction were steady to $2 higher, while calves were $4-$5 lower.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Futures were higher again this week, seemingly breaking records each trading day. The remaining 2014 contracts had the largest gains on the week, up roughly $4.00 to $5.50 depending on the contract. Deferred 2015 contracts were up about $2. Wholesale beef prices moved higher throughout the week providing the bulk of the support. Last Friday’s Cattle on Feed report was right in-line with expectations but continued to indicate few cattle/beef supplies and fewer will be available moving forward (see the results HERE). Monday’s Cold Storage report echoed that sentiment, showing a sharp decline in May inventories of beef and pork supplies, which pushed fed futures up limit the following day.

Corn futures were lower this week. The nearby July (old crop) contract showed the most weakness, dropping 11 cents per bushel compared to the previous Friday. It has been a fairly dull time in the corn market thus far in June, but that will change Monday with release of the Acreage report, which will provide a clearer picture of planted acres.

Beef:

Wholesale boxed beef prices were higher this week, breaking through the high set a few months back. Choice boxes averaged $244.39, up $6.00. Select boxes averaged of $237.83, up $7.05.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

Cattle Market Notes: Week Ending Jun 13, 2014

Cash Cattle:

Cash fed cattle were higher this week. The five-area weighted average steer price for the week ended Friday was $149.37, up $4.24 from the previous Friday, and dressed steers averaged $236.38, up $4.54. Live cattle sold at $147 in the Texas panhandle and at $148 in Kansas on Thursday. In Nebraska, live and dressed sales were reported at $150 and $236-$238, respectively, on Friday. Sales in the Western Cornbelt were $148-$150 and $235-$238, respectively for live and dressed.

Feeder steers in Mississippi auctions this week were $5-$7 higher and feeder heifers were steady to $5 higher. Steer calves were mostly $10 higher and heifer calves were steady to $5 higher. Cull cows and bulls were mostly steady. Feeders in Oklahoma City’s auction were $3-$6 higher with heavy weights up $8-$10. Calves in OKC were $10-$15 higher.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

What a week! Live cattle futures ended Friday higher with most contracts up $4-$5 (the largest gains of $6.80 were seen on the nearby June contract). Futures were able to shake off a negative tone (mediocre at best) to equity markets and the general economy. Cash markets provided support as well as the continued premium of cash versus futures. The biggest gains were seen in feeder cattle futures. Now all posted contract months are above the $200 mark as all contracts were $7-$8 higher on the week. Rains across Texas and the southwest have invigorated the market. All eyes will be on Friday’s Cattle on Feed report, so expect some maneuvering leading up to that.

Corn futures were about 9 to 14 cents lower this week. Wednesday’s USDA supply/demand and crop reports were on par with the May report. Rains in the Southern Plains provided some comfort about the crops in those states and both progress and condition ratings continue to add pressure. For more on the supply and demand report check out Dr. William’s write-up HERE.

Beef:

Wholesale boxed beef prices were steady for this week. Choice boxes averaged $231.80, down $0.01. Select boxes edged higher throughout the week and ended with an average of $222.86, up $0.48.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

A reduction in land prices stirs thoughts of a bursting bubble

A report by agrimoney.com show that farm land values have seen their first decline in nearly 5 years falling 1% in the first quarter of 2014.  The decline was triggered by a substantial drop in grain prices at the end of 2013.  In the south central plains, dryland prices declined 1.4% while irrigated crop ground increased at a modest 4.3%.   In the corn-belt states such as Illinois and Indianan, price dropped by 4%.Tractor

At the same time, pasture land values have increased.  Falling feed grain prices which have spurred the slowdown in crop land values have conversely improved profit margins for the cattle industry increasing the value of the product produced on pasture ground.

Pasture

The questions on most farmers, ranchers, lenders, and economists minds during the recent run-up in land prices are: How high will land prices go, and will there be a bust similar to the 1980’s?  Some economists believe that an agricultural land bust similar to the 1980’s will not happen.  They cite crop insurance programs, who do a better job stabilizing revenue, as one reason such that lean years today won’t be as lean as years past.  The other main reason is that the level of indebtedness has been reduced by farmers. Current reports show that, in aggregate, farms are not has highly leveraged today as in the 1980’s and the average farm has a higher buffer for times of financial hardship.

A repot by Allen Featherstone at Kansas State University acknowledges that farms in Kansas had an average debt to asset ratio much lower than in 1979.  However, Featherstone points out that there is a higher percentage of farms in Kansas with a debt-to-asset ratio greater than 70% today than during the 1980’s bubble. The fact that more farms are highly leveraged today than before is critical according to the report since defaults typically occur within this group.  Featherstone also points out that the bubble of the 1980’s was started by a significant drop in the value of farmland production over a two year period, and that a similar drop today over a similar period of time would not be substantially mitigated by price/revenue supports.  Therefore, Featherstone concludes that it will not be leverage that will begin a bust cycle for land, but may increase the problem.

Few Surprises in June Supply and Demand Estimates

Wednesday’s World Agricultural Supply and Demand Estimates (WASDE) left both new and old-crop U.S. corn ending stocks unchanged from a month ago. U.S. new crop corn production is unchanged at 13.935 billion bushels despite an extremely favorable 75% of the U.S. crop rated in good or excellent condition in Monday’s crop progress report. New crop ending stocks are estimated to be 1.726 billion bushels, while old crop ending stocks are estimated to be 1.146 billion bushels. On the global corn market, ending stocks for the 2014/15 crop are estimated to be 182.65 million metric tons, an increase of just under one million metric tons from last month. Much of this increase is the result of higher production in Russia, Ukraine, and the European Union.

Old crop U.S. soybean stocks were reduced another 5 million bushels from last month’s estimate to 125 million bushels, lower than trade expectations of 127 million bushels. If realized, the 2013/14 ending stocks number would be the third smallest since 1970, while the stocks-to-use ratio will be the smallest on record. Old crop soybean crush was revised up by 5 million bushes while other disappearance remained unchanged. New crop 2014/15 soybean ending stocks are expected to be more than double the old crop stocks at 325 million bushels. Production remained unchanged at 3.635 billion bushels, which if realized would be a record crop. Soybean disappearance also remains unchanged for the new crop production year, with the only change on the balance sheet coming from a lower carryover from the old crop year. Global soybean ending stocks were raised by 550,000 metric tons from May’s estimates, with much of the increase coming from a larger carryover and slightly higher production.

The new crop 2014/15 wheat ending stocks were raised by 34 million bushels from the May report. Poor wheat conditions have resulted in the USDA revising wheat yields down by 0.4 bu/acre to 42.3 bu/acre. Production is down 21million bushels from last month while beginning stocks are 10 million bushels higher as a result of lower old-crop exports and food use. U.S. food use and feed use for wheat were both revised down 10 million bushels from last month. U.S. wheat exports were revised down 25 million bushels from last month. Globally, 2014/15 wheat ending stocks were increased by 1.19 million metric tons with 4.58 million ton increase in global wheat production. Global feed use and exports are revised higher to partially offset the increase in global production. The European Union, China, Russia, India, and countries in the former Soviet Union all saw upward revisions in production.

Cattle Market Notes: Jun 06, 2014

Cash Cattle:

Cash fed cattle were down again this week. The five-area weighted average steer price for the week ended Friday was $145.13, up $0.97 from the previous Friday, and dressed steers averaged $231.84, up $1.08. Live cattle sold at $145 in the Southern Plains. In Nebraska, live and dressed sales were reported at $145-$146 and $232-$233, respectively. There were not enough sales in the Western Cornbelt to report a price.

Feeder steers and heifers in Mississippi auctions this week were steady to $5 higher, while steer and heifers calves were steady to $10 higher. Cull cows were steady to $3 higher and bulls were $2 higher. When compared to two weeks ago, cattle sold in Oklahoma City’s auction were $1-$3 higher for feeder steers and heifers, while calves were $3-$6 higher.

USDA’s Crop Progress report indicated that 50% of U.S. pastures are in good or excellent condition compared with 47% last week and one year ago. Not surprisingly, Mississippi pastures are ahead of this average with 68% rated good and excellent compared with 53% in these categories at this time last year.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Live cattle futures ended Friday higher with the largest gains on nearby, June and August, contracts. This continues to support my theory that futures trade is reluctant to fully “buy-in” to the higher market for more deferred contracts (for further explanation CLICK HERE). Higher cash markets late in the week lifted spirits in spite of slightly lower beef prices. Export numbers for April were released this week and beef exports were 16.8% above year ago levels. Furthermore, strong equity markets also provided support as the S&P 500 and Dow Jones Industrial Average indices eclipsed previous records this week.

Feeder cattle futures finally rose above the $200/cwt mark on Thursday (for the fall line-up of contracts). Take a minute to re-read that previous sentence and ponder the implications.  Higher live cattle and mostly steady corn prices added to the overwhelming support being shown in feeder auction markets across the U.S.

Corn futures steadied out this week. USDA surveys revealed 80% of the crop has emerged as of June 1, which is in-line with the average emergence from 2009 to 2013. The U.S. crop rated good and excellent totaled 76%, which is 13 percentage points higher than the same time one year ago. Illinois, Indiana, and Iowa respectively have 70%, 70%, and 82% of their crop rated good or excellent. Mississippi’s corn crop with these ratings is currently 68% – as of June 1 – versus 53% last year.

Beef:

Wholesale boxed beef prices were lower this week. Choice boxes averaged $231.81, down $1.63. Select boxes were $222.38, down $0.74.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.

Crop Market Update: June 2, 2014

U.S. crop progress is ahead of a year ago and is close to being on pace with the 5-year average for most major crops. U.S. producers currently have 95% of the U.S. corn crop currently planted, slightly ahead of the 5-year average of 94%. Emergence of the U.S. corn crop is at 80%, falling in line with the 5-year average and about 9% ahead of a year ago. As planting nears completion, U.S. producers were able to get 7% of the corn crop planted last week and should be finishing soon. Nearly all of Mississippi’s corn has emerged and a few Mississippi producers have seen their crop enter the silking stage. Silking is behind normal with 2% of Mississippi’s corn silked compared to a 5-year average of 21%. The condition of this year’s corn crop is much improved over a year ago. Mississippi currently has its corn rated at 68% good or excellent compared to 53% a year ago. The U.S. corn crop is faring even better with 76% being rated as good or excellent compared to 63% a year ago. With this year’s crop already looking better than last year’s record crop, corn futures have been trending lower since the second week of May. With continued favorable growing conditions, this trend may continue despite strong export demand.

Soybean planting is well ahead of a year ago and national progress is slightly ahead of the 5-year average. 86% of the Mississippi soybean crop is in the ground compared to only 70% at this time a year ago and a 5-year average of 88%. Mississippi producers have seen 71% of the soybean crop emerge, right on pace with the 5-year average of 72%. U.S. producers have 78% of the soybean crop planted, with 19% of the crop planted in the last week. U.S. soybean planting progress is ahead of the 5-year average of 70% and well ahead of last year’s pace of 55%. Recent rains and overall good growing conditions have caused harvest time soybean futures to dip from their highs set a week and a half ago, but extremely tight supplies have kept old-crop futures from falling much.

U.S. wheat conditions continue to look bleak with only 32% of the crop rated good or excellent while 43% is rated poor or very poor. The U.S. wheat crop is on pace with the 5-year average, with 79% of the crop headed out. Mississippi is faring far better with 72% of the wheat crop rated good or excellent and 99% of the wheat in the state is headed out. A few Mississippi wheat producers have pulled their combines out of the shed and begun harvesting, with 3% of the state’s wheat crop out of the field this week. Despite the negative outlook on U.S. wheat production, wheat prices have been struggling in recent weeks. Global wheat conditions are good with favorable growing conditions in Russia, Ukraine, and Australia. The spring wheat crop is also looking much better than the winter wheat crop, which is also contributing to lower prices.

For more detail on crop futures and Mississippi local cash prices click here. Detailed information on crop progress and condition can be found here.

2014’s Fed Cattle Basis is VERY Strong

Note: This was first posted at the Livestock Marketing Information Center’s In the Cattle Markets newsletter.

A quick look at prices in cattle and beef sectors reveals tremendous gains (the same can be written for hogs and pork). Just last week John Anderson highlighted the record setting pace of retail prices. Many others, including me, have made note of record live and feeder cattle futures and cash prices over the past number of months. An item getting less attention is the rather strong premium in place for cash cattle versus futures that has been occurring fairly regularly since the first of the year.

Roughly one year ago I noted the erratic fed cattle basis in an In the Cattle Market’s write-up. At that time basis moved from “extremely” weak to “extremely” strong in a short amount of time. As 2013 progressed fed basis continued to bounce around, but maintained its seasonal pattern. A different event is occurring in 2014, with the weekly weighted average five-area fed cattle cash price for both steers and heifers having dipped into negative territory versus the nearby live cattle futures contract only once. The same result holds for weekly average cash markets in Texas/Oklahoma and Kansas, whereas Nebraska weekly average prices have been higher than futures the entire time. Furthermore, of the 21 weeks ended this past Friday, only seven (one-third) have been lower than the highest mark set since 2002. The accompanying figure illustrates 2014’s strong cash prices relative to futures (click the figure to view a larger size).

This reveals a few things. First, given the known tight supplies, the market is making an attempt to maintain currentness by bidding up cash prices.  Second, thinking back to hedging fundamentals, a stronger than anticipated basis is a good thing for short hedgers and therefore in this instance could very well be adding a bit of a cushion to hedged feeders.  Third, and in my opinion most important, it shows the reluctance of the futures market to whole-heartedly “buy-in” to the record setting prices.  In the current environment the market is essentially working outside of its observed set of data and therefore is largely in unchartered waters.  The result appears to be a higher instance of hesitation in Chicago as compared to the cash markets in the Plains.

Fed Basis: May 2014

Cattle Market Notes: Week Ending May 30, 2014

Cash Cattle:

Cash fed cattle were down again this week. The five-area weighted average steer price for the week ended Friday was $144.69, down $2.26 from the previous Friday, and dressed steers averaged $232.26, down $1.08. Live cattle sold at $143 in the Southern Plains on Wednesday. Also on Wednesday, in Nebraska, live and dressed sales were reported at $145-$146 and $230-$232, respectively. In the Western Cornbelt prices were at $144-$145 and $226-$230, respectively, for live and dressed.

Feeder steers and steer calves in Mississippi auctions this week were mostly $3-$5 lower and feeder heifers and heifer calves were $1-$2 higher on the week. Cull cows and bulls in Mississippi were mostly steady to a tick higher. The Oklahoma City auction took the Memorial Day holiday off.

[ … For Livestock Prices and Production data and trends CLICK HERE … ]

Futures:

Live cattle futures started the holiday shortened week on a sour note but moved higher Wednesday and Thursday. Hangover from early reports of lackluster Memorial Day demand weighed heavy Tuesday, but steady cash and beef prices provided a lift mid-week. Friday’s daily boxed beef report dipped and added pressure to futures to close the week out. Weakness in the corn market along with the mid-week strength in live futures pushed fall feeder futures close to the $2 mark and all current month’s reached contract highs on either Thursday (for fall contract months) or Friday (for winter/spring contracts).

Corn futures continue to move lower. Improved weather is the primary culprit of the weakness in corn prices.

Beef:

Wholesale boxed beef prices were higher this week. Choice boxes averaged $233.44, up $2.96. Select boxes were $223.12, up $3.38.

Note: all cattle and beef prices are quoted in dollars per hundredweight and corn prices are quoted in dollars per bushel, unless stated otherwise.