Tennessee Market Highlights

Transcription

1 Tennessee Market Highlights July 3, 2014 Number: 27 Trends for the Week Compared to a Week Ago Slaughter Cows No trends reported this week Slaughter Bulls No trends reported this week Feeder Steers No trends reported this week Feeder Heifers No trends reported this week Feeder Cattle Index Tuesday s index: $ Fed Cattle The 5-area live price of $ is up $7.40. The dressed price is up $13.45 at $ Corn July closed at $4.17 a bushel, down 26 cents since last Friday. Soybeans July closed at $13.87 a bushel, down 45 cents a bushel since last Friday. Wheat July closed at $5.68 a bushel, down 17 cents since last Friday. Cotton July closed at cents per lb, down 4.67 cents per lb since last Friday. Livestock Comments by Dr. Andrew P. Griffith FED CATTLE: Fed cattle traded $3 to $4 higher on a live basis. Prices on a live basis were $157 to $158 while dressed trade occurred between $248 and $250. The 5- area weighted average prices thru Wednesday were $ live, up $6.05 from last week and $ dressed, up $8.63 from a week ago. A year ago prices were $ live and $ dressed. Fed cattle prices continue to set records on the cash market. Live prices have increased $14 to $15 the past five weeks while dressed prices have increased about $18 over the same time period. The futures market has continued to creep higher in a chase to reach the cash price but futures continue to trade at a $3 to $4 discount to cash prices. Some analyst still think there is a chance for cattle prices to decline to the upper $130s, but all the deferred contracts until April of 2015 are trading higher than $155 which would make a scenario where cattle prices declined $15 to $20 unlikely. The potential for lower trade should not be discounted as this is a time of year when prices can fall sharply, but market fundamentals seem to be supporting higher trade. BEEF CUTOUT: At midday Thursday, the Choice cutout was $ up $0.99 from Wednesday and up $2.58 from last Friday. The Select cutout was $ up $1.13 from Wednesday and up $3.74 from last Friday. The Choice Select spread was $7.40 compared to $8.56 a week ago. Record setting cutout prices have allowed packers to continue bidding up fed cattle the past few weeks. As retailers and restaurants continue trying to fill orders with a relatively short supply of beef, wholesale prices continue to escalate. The latest restaurant performance index was released earlier this week with an increasingly optimistic outlook from restaurant operators. The restaurant performance index, a monthly composite index that tracks the health and outlook for the U.S. restaurant industry, stood at for May which is the strongest reading since March An index exceeding 100 signifies expansion in the industry. The current situation and the expectations of restaurants bode well for the beef industry as beef is a marque item in most restaurants. Many restaurants are serving smaller portion sizes, or they are changing the cuts of meat used to combat part of the rise in beef costs. Thus far, consumers have continued to purchase beef, but there may be some bumps in the road ahead as retail prices continue increasing. TENNESSEE AUCTIONS: Tennessee auctions were not reported this week. However, feeders were reported as much as $5 higher than last week on the Oklahoma City feeder auction while some lightweight classes were up as much as $10 to $20. OUTLOOK: Rain across portions of the Southwest and Midwest has resulted in producers keeping feeder cattle on pasture. Summer grazing conditions have improved significantly relative to previous years in major cattle grazing areas. Current conditions are providing producers the opportunity to continue growing calves as well as providing an opportunity to increase hay stocks. There continues to be areas facing extreme and exceptional drought in Texas, Oklahoma, Kansas, New Mexico and Colorado, but recent precipitation has promoted and supported summer pasture. Calf and feeder cattle markets have been on a steady incline since the beginning of March, but most folks in the industry realize the linear trajectory prices have been following will not continue indefinitely. The question to be answered is how far prices will decline after reaching their apex. The answer is unknown at this point, but market fundamentals can provide a sketch of the potential market movement. A short supply of cattle has been the driving force behind the market as feedlots continue to attempt to procure cattle to place in pens. However, (Continued on page 2)

2 Livestock Comments by Dr. Andrew Griffith (Continued from page 1) even more important than the short supply of cattle is how strong beef demand has remained through the escalation of beef prices. Consumers continue to purchase beef despite record retail beef prices. Many consumers are trading down to lower valued meat such as ground beef, but this has helped support 90 percent lean beef from slaughter cows and 50 percent trim from fed cattle. Additionally, the export market has continued to strengthen which has added significant value to the total carcass by increasing value of variety meats. Additionally from the standpoint of cattle feeders, crop growing conditions have been favorable which has resulted in the expectation for lower corn prices and other grain prices. And to further support the calf and feeder cattle market is the attempt by many producers to expand the cattle herd size. Producers in many regions are holding back heifers to be developed as breeding stock which results in fewer cattle available to enter the feedlot. The compression of all the stated factors plus some additional factors should provide enough support so that the bottom does not fall out of cattle prices which will result in fairly flat prices once the apex is achieved. TECHNICALLY SPEAKING: Based on Wednesday s closing prices, August live cattle closed at $ Support is at $150.77, then Average Daily Slaughter Cattle Hogs Number of head This week (3 days) 116, ,667 Last week (3 days) 115, ,000 Year ago (3 days) 124, ,000 This week as percentage of Week ago (%) 100% 104% Year ago (%) 94% 96% $ Resistance is at $154.19, then $ The RSI is October live cattle closed at $ Support is at $153.98, then $ Resistance is at $157.68, then $ The RSI is December live cattle closed at $ Support is at $155.38, then $ Resistance is at $ then $ The RSI is August feeders closed at $ Support is at $214.79, then $ Resistance is at $218.19, then $ The RSI is November feeders closed at $ Support is at $217.00, then $ Resistance is at $ then $ The RSI is January feeders closed at $ Support is at $211.70, then $ Resistance is at $ then $ The RSI is Thursday s closing prices were as follows: Live/fed cattle August $ ; October $ ; December $ ; Feeder cattle - August $ ; October $ ; November $ ; January $ ; July corn closed at $4.17 down $0.02 from Thursday. Milk Futures Wednesday July 2, 2014 Month Class III Close Class IV Close Jun Jul Aug Sep Oct USDA Box Beef Cutout Value Choice 1-3 Select lbs lbs $/cwt - Wednesday Last Week Year ago Change from week ago Change from year ago Crop Comments by Dr. Aaron Smith Overview Corn, cotton, soybeans, and wheat were down for the week. The USDA s Acreage and Grain Stocks reports released June 30th provided fuel for a dramatic decrease in futures prices for corn, soybeans, cotton, and wheat. Estimated corn planted acreage was decreased 50,000 acres however stocks as of June 1st were increased 39% from 2013 to 3.85 billion bushels. The increase in corn stocks signals a greater carry over into the next marketing year. Both new crop and old crop soybeans received bearish information in the reports. The Acreage report indicated an increase of million acres of soybeans to a total of million. This is an estimated 8.3 million acres more planted to soybeans in 2014 than The combination of record acreage and excellent growing conditions year-to-date could lead to record production this fall. The Grain Stocks report estimated quarterly soybean stocks at 405 million bushels as of June 1st, larger ending stocks than most analysts anticipated. All wheat acreage planted was up 659,000 acres from the March Prospective Plantings report, exceeding most expectations. Wheat ending stocks as of June 1st were close to what many were anticipating. Cotton acreage was up 248,000 from the March report and with improved conditions in Texas many are anticipating a reduction in abandonment acres this fall. Summary and analysis of both reports can be found on the University of Tennessee Ag Eon web site: 2

3 Crop Comments by Dr. Aaron Smith Corn July 2014 corn futures closed at $4.17 down 26 cents from last week with support at $4.13 and resistance at $4.21. Cash prices this week were only available for Memphis due to the July 4th Holiday. Basis in Memphis for the week ranged from 21 over to 30 over the July futures contract. Basis at the end of the week was 21 over. Corn net sales reported by exporters from June 20th to 26th were within expectations at 11.4 million bushels for the 2013/14 marketing year and above expectations at 18.7 million bushels for the 2014/15 marketing year. Exports for the same time period were down from last week at 35.8 million bushels. Corn export sales and commitments are 98% of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31) compared to a 5-year average of 100%. Ethanol production for the week ending June 27th was 953,000 barrels per day up 15,000 barrels per day. Ending ethanol stocks were million barrels up 21,000 barrels. July/Sept and July/Dec future spreads were -8 cents and -2 cents, respectively. September 2014 corn futures closed at $4.09 down 33 cents from last week with support at $4.05 and resistance at $4.26. December futures closed at $4.15. Nationally, the June 30th Crop Progress report estimated corn silking at 5% compared to 3% last year and a 5-year average of 9% and corn condition at 75% good to excellent 5% poor to very poor. In Tennessee, corn silking was estimated at 25% compared to 8% last week, 31% last year, and a 5-year average of 51% and corn condition at 78% good to excellent and 5% poor to very poor. This week September and December 2014 corn futures prices traded between $4.09 and $4.44. September cash forward contracts at Memphis for the week averaged $4.11 with a range of $4.07 to $4.14. Downside price protection could be obtained by purchasing a $4.10 September 2014 Put Option costing 14 cents establishing a $3.96 futures floor. Soybeans July 2014 soybean futures closed at $13.87 down 45 cents for the week with support at $13.78 and resistance at $ Nearby soybean to corn price ratio was 3.33 at the end of the week. Basis in Memphis for the week ranged from 12 over to 14 under the July futures contract. Net sales reported by exporters were within expectations with net sales of 1.5 million bushels for the 2013/14 marketing year and within expectations for the 2014/15 marketing year with net sales of 15.8 million bushels. Exports for the same period were up from last week at 4.6 million bushels. Soybean export sales and commitments are 105% of the USDA estimated total annual exports for the 2013/14 marketing year (September 1 to August 31), compared to a 5-year average of 102%. August 2014 soybean futures were trading at $ July/Aug and July/Nov future spreads were -88 cents and -254 cents. 3 (Continued on page 4)

4 Crop Comments by Dr. Aaron Smith November 2014 soybean futures closed at $11.33 down 95 cents from last week with support at $11.23 and resistance at $ The Crop Progress report estimated soybeans emerged at 94% compared to 90% last week, 90% last year, and a 5-year average of 94%; soybeans blooming at 10% compared to 3% last year and a 5-year average of 10%; and soybean condition at 72% good to excellent 5% poor to very poor. In Tennessee, soybeans emerged were estimated at 71% compared to 62% last week, 65% last year, and a 5-year average of 81%; and soybean condition at 79% good to excellent 3% poor to very poor. This week November 2014 soybean futures traded between $11.32 and $ Harvest soybean to corn price ratio was November cash forward contracts in Memphis ranged between $11.59 and $ Downside price protection could be achieved by purchasing an $11.40 November 2014 Put Option which would cost 53 cents and set a $10.87 futures floor. Cotton July 2014 cotton futures closed at down 4.67 cents for the week with support at and resistance at Net sales reported by exporters were up from last week at 34,900 bales of upland cotton for the 2013/14 marketing year and 59,700 bales for the 2014/15 marketing year. Exports for the same period were up from last week at 170,600 bales. Cotton export sales and commitments are 106% of the USDA estimated total annual exports for the 2013/14 marketing year (August 1 to July 31), compared to a 5-year average of 108%. Oct 2014 cotton futures are trading at July/Oct and July/Dec future spreads were cents and cents. December 2014 cotton futures closed at down 2.79 cents for the week with support at and resistance at The Crop Progress report estimated cotton squaring at 36% compared to 25% last week, 35% last year, and a 5-year average of 42%; cotton setting bolls at 7% compared to 3% last week, 6% last year, and a 5-year average 10%; and cotton condition at 53% good to excellent 13% poor to very poor. In Tennessee, cotton squaring at 50% compared to 39% last week, 27% last year and a 5-year average of 45%; cotton setting bolls at 4% compared to 2% last week and a 5-year average of 1%; and cotton condition at 68% good to excellent 7% poor to very poor. December cotton futures traded between and cents this week. Downside price protection could be obtained by purchasing a 73 cent December 2014 Put Option costing 3.62 cents establishing a cent futures floor. Wheat July 2014 wheat futures closed at $5.68 down 17 cents from last week with support at $5.56 and resistance at $5.74. Net sales reported by exporters were above expectations at 20.9 million bushels for the 2014/15 marketing year. Exports for the same period were up from last week at 12.3 million bushels. Wheat export sales are 31% of the USDA estimated total annual exports for the 2014/15 marketing year (June 1 to May 31), compared to a 5-year average of 25%. The Crop Progress report estimated winter wheat harvested at 43% compared to 33% last week, 40% last year, and a 5-year average of 48%; and winter wheat condition at 30% good to excellent and 44% poor to very poor. In Tennessee, winter wheat condition was estimated at 80% good to excellent and 2% poor to very poor; winter wheat mature at 97% compared to 89% last week, 97% last year, and a 5-year average of 99%; and wheat harvested at 57% compared to 33% last week, 74% last year, and a 5-year average of 90%. July wheat futures traded between $5.55 and $5.84 this week. July wheat to corn price ratio was In Memphis, June/July cash forward contracts averaged $5.60 with a range of $5.54 to $5.65. July/Sept and July/July future spreads were 11 cents and 84 cents. September 2014 wheat futures closed at $5.79 down 14 cents from last week with support at $5.65 and resistance at $5.82. The Crop Progress report estimated spring wheat headed at 26% compared to 10% last week, 16% last year, and a 5-year average of 29%; and spring wheat condition at 70% good to excellent 5% poor to very poor. September wheat to corn price ratio was July 2015 wheat futures closed at $6.52. Downside price protection could be obtained by purchasing a $6.60 July 2015 Put Option costing 55 cents establishing a $6.05 futures floor. 4 (Continued on page 5)

5 Crop Comments by Dr. Aaron Smith Additional Information If you would like further information or clarification on topics discussed in the crop comments section or would like to be added to our free list please contact me at 5

6 Futures Settlement Prices: Crops & Livestock Friday, June 27, 2014 Thursday, July 3, 2014 Commodity Contract Month Friday Monday Tuesday Wednesday Thursday Soybeans Jul ($/bushel) Aug Sep Nov Jan Mar Corn Jul ($/bushel) Sep Dec Mar May Jul Wheat Jul ($/bushel) Sep Dec Mar May Soybean Meal Jul ($/ton) Aug Sep Oct Dec Jan Cotton Jul ( /lb) Oct Dec Mar May Live Cattle Jun ($/cwt) Aug Oct Dec Feb Feeder Cattle Aug ($/cwt) Sep Oct Nov Jan Mar Market Hogs Jul ($/cwt) Aug Oct Dec Feb

7 NOT UPDATED THIS WEEK Tennessee lbs. M-1 Steer Prices 2013, 2014 and 5-year average NOT UPDATED THIS WEEK Tennessee lbs. M-1 Steer Prices 2013, 2014 and 5-year average 2008/2012 Avg / 2012 Avg Area Finished Cattle Prices 2013, 2014 and 5-year average NOT UPDATED THIS WEEK Tennessee Slaughter Cow Prices Breakers 75-80% 2013, 2014 and 5-year average 2008/2012 Avg /2012 Avg Prices Paid to Farmers by Elevators Friday, June 27, 2014 Thursday, July 3, 2014 Friday Monday Tuesday Wednesday Thursday Thursday Harvest Low High Low High Low High Low High Low High Low High - $/bushel No. 2 Yellow Soybeans Memphis N.W. B.P N.W. TN Upper Md Lower Md Yellow Corn Memphis N.W. B.P N.W. TN Upper Md Lower Md Wheat Memphis

8 Beef Industry News Featured Article from Drovers CattleNetwork Market value of feeder cattle weight gain Feeder cattle prices have reached lofty levels this year. The combined weighted average price for lb steers in South Dakota was $260.48/cwt for the third week of June, almost $60/cwt higher than at the beginning of the year and more than $100/cwt higher than a year ago. Prices for lb steers averaged $217.03/cwt, $43/cwt higher than the beginning of January and $72/cwt higher than a year ago. These higher prices have been driven by shrinking cattle supplies and generally good demand from feedyards with excess feeding capacity. Recent cattle on feed reports have indicated that cattle feeders have been placing more lighter weight calves on feed as available supplies of feeder cattle have decreased. As discussed in last week s article, placements of calves weighing less than 600 lb were 10% higher in May compared to a year ago. As a result of this trend towards placing lighter weight calves on feed, the value of gain for these light weight calves is quite high. For example, during the first half of June, 350 lb steer calves in South Dakota averaged $274.96/cwt or $962.36/head. Steer calves weighing 450 lb averaged $280.17/cwt or $ /head. Thus, the market s valuation for the additional 100 lb of weight was $298.41/cwt. Similar calculations reveal that the market s valuation for the next 100 lb of weight gain (from 450 lb to 550 lb) drops substantially to $156.64/cwt. Another 100 lb of weight (550 lb to 650 lb) currently costs $107.56/cwt at market prices. The market s lowest valuation for cost of gain is from 650 lb to 750 lb: $70.88/cwt. Beyond that weight, the market s value for weight gain increases to $103.21/cwt (750 lb to 850 lb) and then is $81.81/cwt for 850 lb to 950 lb. Considering these market valuations for additional weight on feeder cattle is particularly useful in the context of actual feeding cost of gain. While cost of gain varies across feedyards due to differences in feed rations, purchasing and hedging decisions, and other production and performance variables, many feedyards currently would have a projected feeding cost of gain around $87-93/cwt for yearling placements. At an average feeding cost of gain of $90/cwt, the market value of incremental weight is higher for all weights except from 650 lb to 750 lb and 850 lb to 950 lb. In other words, for all weights (particularly lighter weight calves), feedyards are better off purchasing lighter weight calves and putting the weight on them rather than buying the additional weight at current market prices. The exception to that (at least during the first half of June) was that it would have been more economical to purchase a 750 lb steer instead of a 650 lb steer or a 950 lb steer instead of an 850 lb steer. While these relationships do change as market conditions change, it does help explain why cattle feeders have been aggressively placing light weight feeder calves. Additionally, they are likely targeting better seasonal fed cattle prices in early 2015 by placing light weight calves rather than lower late-summer and early fall markets that heavy weight yearlings would have been placed against. Another consideration is that lighter weight feeder cattle cost fewer total dollars per head than heavier weight yearlings. At near record high feeder cattle prices and fewer outside investors interested in feeding cattle, a feedyard s working capital needs are very high and the incentive is there to spend fewer dollars per head to obtain feeder cattle. University of Tennessee Extension Department of Agricultural and Resource Economics 314 Morgan Hall 2621 Morgan Circle USDA / Tennessee Department of Agriculture Market News Service