North American roundup 23 June

Feed corn cost hits US cattle prices

CATTLE prices have been driven sharply lower by a corn rally, which has raised the cost of feed. The Chicago August feeder (store) cattle contract dropped nearly 3¢ last week, from 75¢/lb on Monday 15 June to a new contract low of 72.2¢/lb on the Friday. However, a drop in corn on 22 June helped cattle inch up to close at 72.95¢/lb.

The latest US Department of Agriculture (USDA) report on feedlot activity is mildly bearish. The number of cattle placed in feedlots with a capacity of over 1000 head jumped 8% during May, from year-earlier figures to 1.94 million head. At the same time, the number of cattle marketed from the feedlots to the packing houses fell 5% from May 1997 to 1.95m head.

Overall, the number of feeder cattle climbed by 1% compared with a year earlier and by 13% compared with two years ago.

Owners will have to sell cattle for slaughter aggressively over the next few months. The high level of feedlot placements during May will translate into ample supply of live cattle for the packers this autumn. This is helping to keep down prices: packers are bidding 62-63¢/lb for fed cattle, while owners are offering at 64-65¢/lb, little changed from last week.

USDA pig report to show further oversupply

PIG futures prices inched lower during the past week of trading, depressed in part by higher grain costs. Many traders are cautiously selling off ahead of this Fridays quarterly pig inventory report from the US Department of Agriculture.

The Chicago August lean hog contract closed yesterday (22 June) at 58.87¢/lb, down about 12¢ from both the previous Friday and a week ago.

Pig producers have suffered substantial losses so far this year and this Fridays report is expected to show worsening oversupply. Many analysts are forecasting a 1-2% growth in the summer breeding herd and a rise in the number of market hogs of up to 6%.

On the bullish side, some traders argue that hot weather forecasts for the Midwest could result in fewer sales of live pigs and oblige the packers to raise their bids. So far, cash prices are little changed at 43.00-43.50¢/lb, compared with 42.50-43.50¢/lb two weeks ago.

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    US maize slumps from six-week record

    AFTER weeks of steady losses, corn (maize) soared by over 7% last week, only to drop sharply again yesterday (22 June). The Chicago July futures contract closed at 250.75¢/bushel, down 2.75¢ from Friday, but still up 14.5¢ from 236.25¢/bushel the previous Friday (12 June ). At one point last week, the contract hit its highest level since early May.

    Most of the rally was weather-related: flood damage in Iowa and Illinois, as well as poor short-term weather forecasts. Many pundits are expecting a heat-wave in the Midwest this week, which could cut crop yields. The question is whether this is the start of a long drought during July and August, the counterpart to El Niño.

    Even poor export data was not enough to dampen last weeks market run. Export inspections for the week ended 11 June totalled only 18.2 million bushels, compared with estimates of 23-30m bushels. But corn farmers are hoping the recent recovery in the Yen will help US corn exports to Asia.

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    Oversupply mutes US wheat rally

    WHEAT prices climbed all last week, but lost some ground yesterday (22 June). The market enjoyed some support from fears of weather damage to the soft red winter wheat crop, as well as stimulus from the strength of maize and soya beans.

    However, wheat only rallied by half as much as maize (3.5% v 7%), a sign that a little adverse weather cannot overcome the severe oversupply in the wheat market. Already 18% of the winter wheat crop is harvested, compared with 5% at this time last year and a five-year average of 10%. Yields look likely to be on a par with last year.

    The Chicago July futures contract gained 9.75¢/bushel to 289.00¢/bushel during last weeks trading, but lost 2.5¢ on Monday (22 June) to close at 286.50¢/bushel. Mondays retreat was caused by improved weather forecasts for both hard winter wheat and the spring wheat crop.

    Many analysts expect production to exceed USDA estimates, and they warn that any further rally in the wheat price could hurt US exports. Nor is there much hope for a jump in domestic consumption, with feed maize in ample supply.

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    Heatwave fears spur US soya futures

    SOYABEAN futures soared 6% last week on forecasts of a heat wave that could damage the crop this week. The Chicago July futures contract leapt 38.25¢/bushel during the week to 652¢ on Friday (19 June).

    However, cooler weather forecasts yesterday caused the contract to give back 3.75¢ of its gains to close at 648.25¢/bushel. Producers took advantage of the rally to sell some of their crop over the weekend, which also contributed to the defensive market on Monday. Looking ahead, most analysts believe that the rally could prove short-lived, unless the weather stays very hot and dry.

    Soya meal rallied on the strength of beans, after hitting a contract low at the start of last week. The Chicago July contract closed on Friday at $170.80/ton, up $16.10 on the week and its highest level since late April. The contract managed to hold on to most of its gains on Monday, despite the drop in beans.

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