Grain prices tumbled this week as the combination of a stronger dollar and bearish supply and demand reports dampened prices. For the week, July wheat lost 17 cents, while the nearby corn contract moved more than 25 cents lower. Old crop soybeans bucked the bearish trend as the July contract posted a weekly gain of 12 cents. Nearby meal prices traded sideways with an upward weekly move of 30 cents per ton. In the softs, cotton eked out a weekly gain of a nickel per hundredweight. In the dairy market, June Class III milk lost 21 cents while the July contract moved 15 cents lower. Over in livestock, the June cattle contract lost $1.37. August feeders were off nearly $1. And the June lean hog contract declined by $1.67. In the financials, the Euro lost 127 basis points against the dollar. Crude oil gained 43 cents per barrel. Comex Gold declined by $27.50 per ounce. And the Goldman Sachs Commodity Index moved fractionally lower to settle at 630.30.
Pearson: Here now to lend us their insight on these and other trends are two of our regular market analysts, Walt Hackney and Virgil Robinson. Gentlemen, welcome back.
Robinson: Thank you.
Hackney: Thank you, Mike.
Pearson: Virgil, I'd like to start with you. We did have the supply and demand estimates from USDA out today and I'd like for you to talk to us a little bit about what happened. The numbers roughly reflected trade estimates. How are these estimates going to impact wheat production and producers going forward?
Robinson: The U.S. wheat production was actually forecast to decline year over year, Mike. However, globally that's not the case. Increases in major exporting countries, the likes of Canada, Australia, Argentina and others more than compensated for the loss or the reduced production here. Hard red winter wheat is an interesting study in my mind. Production is forecast to decline year over year. Condition reports at least initially indicate the sum of good and excellent wheat through the southwest, one of the lower levels of many, many years. So I think the theme there will be probably an unusually strong basis all year long, Walt, in an effort to try and source fewer bushels of higher protein wheat as well as less carry. Globally, however, wheat supplies will be ample and it is likely that global prices will decline, Mike, over the next several months.
Pearson: So this does put U.S. wheat producers in a bit of a tough spot when you're looking at the lower production estimates that we're faced with in the country versus increased global supply. What is your best advice to producers out there in terms of trying to make a profit in this market?
Robinson: Well, I hope they've done some selling or forward contracting or some type of price risk management prior to tonight, Mike. In the event they have not there will yet be, in my mind, some weather instilled rallies at which point they'll be given the opportunity and the opportunity to make a decision on price and I'd use those, Mike, to price physical product or certainly at a minimum create some kind of price floor below that production.
Pearson: At least be able to ensure some margin as the season progresses.
Robinson: Yeah, I think that is right. And, again, you know, often times when we've seen that this year in both corn and soybeans the strength in the market is really a manifestation of the local basis and lack of carry and that certainly is the case in several commodities tonight.
Pearson: And it's certainly true in corn. Could you talk to us a little bit about the USDA's estimates in corn and what effect that's going to have going forward?
Robinson: Yeah, you know, the theme was pretty well established back in February regarding year over year or the increase in year over year supplies here in the U.S. as well as in the world. So I don't think that comes as a big surprise. I think we mentioned, Mike, last time we visited that this is one of those years if you accept the recent S&D at face value where storage hedges, having on-farm storage, the wherewithal to make a short hedge, then capture the carry normally in the fall of the year and then look for basis levels to appreciate in the spring of 2014, there will be some attractive storage hedge opportunities in corn. I think we'll improve price well beyond what corn is worth tonight for fall delivery. So that's an opportunity.
Pearson: It's an opportunity. And for folks with old crop production still in bins, what does the situation look like there? Are we going to see tight supplies all summer?
Robinson: There will be a point in the calendar where we make the transition from the assumed or the legitimate tight stocks to much more adequate supply. At what point in the calendar I can't tell you, Mike. Much will depend on how we plant the balance of this corn crop. We're not likely to have the kind of supply we had last year as early as we did so certainly that is a factor. For those that still own old crop corn tributary I think the ethanol facilities, tributary to feedlots, tributary to rail shippers, I think they probably should continue to look for opportunities at price levels above tonight's market.
Pearson: Okay. Let's take a look at beans. Again, nothing too exciting in the report that came out today. What does that tell you? What is the market interpreting from the report today?
Robinson: Well, again, much like the February forum the theme here is in a year's time we swing from unusually tight stocks of soybeans in the U.S. to what is projected to be more comfortable supplies. That was, I think, accentuated by the fact that global supplies are forecast to increase significantly season over season. So please understand and acknowledge that as you think about your new crop should you have little or nothing priced. At face value tonight's supply and demand estimates are bearish for new crop corn, new crop beans.
Pearson: Alright. Thank you, Virgil, appreciate your thoughts there. Now I'd like to talk to Walt a little bit. Building on what Virgil has talked about we're in a very interesting time in the cattle market, particularly in the live cattle market. I was hoping you could sort of shed some light on what packers and producers are experiencing when we're seeing record retail prices for beef cuts and high cash prices but we're not seeing it on the board. Could you give us a little bit of an insight into this market?
Hackney: There's so many factors, Mike, that are influencing this beef, livestock trade as we speak. And you hit on the majority of those factors. Why would the Mercantile be sitting there as we speak varying by the month in reference but from $3 to $5 or $6 dollars a hundred weight under the cash market. That is a kind of a new occasion for a lot of the traders. The other occasion we have is last week we sold fat cattle from Colorado through the Corn Belt, particularly the northern plains at $1.31. We sold those same cattle out of the west Texas, Kansas and Oklahoma country at $1.28 which isn't uncalled for. The fact remains dressed beef was more or less a sideways affair. It didn't really in the cut out values do much price variation during that up of $4 to $6 a hundred weight in the value of the cattle last week. This week we've lost from $4 to $5 a hundred weight in the price of our feedlot cattle, we've gone from $1.31 to $1.26, we have gone from a dressed price of last week of $2.07 to $1.98 to $2.00 this week. We have in the value of the choice beef cut out went to all-time historic highs this week and appreciation of a little over $4 a hundred weight. These are all questions to be answered. The industry as we speak, Mike, is in more of an undecision type of a position than I personally have ever seen it. There is no real definition to the questions that are coming out of this price market. We've got packers short in their kill this week particularly with the rise in the dress beef market. They're not in the market to buy out of necessity or, if you will, a forced affair. They're sitting there bidding steady money at lower prices expecting that sometime today, as we speak, they will in fact own cattle instead of $1.28 where some of the cattle are being priced they'll be able to own them at $1.25 or $1.26 and they're trying to wait out the cattle feeder. The shortest inventory of finished cattle we've had in years yet they feel comfortable in waiting it out and being able to dictate where the price of this product is. Where is the profits? No one will want to put a figure on it but retail has got some phenomenal profit in their market, in their structure. Packers have got a decent profit. For a moment a week ago the cattle feeder had a glimpse of profit. This week we're right back to the 250 to 200 plus loss in the fat cattle.
Pearson: So we saw fat cattle producers see a little bit of black ink last week. What are you seeing on the feeder side? What are feeder cattle producers seeing?
Hackney: Well, you've still got a historic shortage of feeder cattle availability nationally because we've got the lightest number of beef cow herd in the nation. We've got the lightest number we've had for over 60 years. We've got availability of summer cattle to go to grass that's nearly impossible to get out and find the adequate numbers the ranchers are wanting.
Pearson: Walt, we've got to go real quick to your thoughts on lean hogs. What is your take there?
Hackney: I think the lean hog market versus some of the commentary, I think the lean hog market is due to see an increase in availability of market hogs back to 2,200,000 head a week compared to some of the projections under 2 million head due to price of corn, as Virgil has discussed, and all of that, feed costs and losses are astronomical in the hog industry.
Pearson: Tough situation. Thank you very much gentlemen, really appreciate you having being here with us tonight. That wraps up this edition of Market to Market. But if you'd like more information from Walt and Virgil on where these markets just may be headed visit the Market Plus page at our website. You'll find expanded market analysis, audio podcasts and streaming video of our program as well as links to our Twitter feed and Facebook account all free at the Market to Market website. Be sure to join us again next week when we'll examine efforts to maximize yield through effective nutrient management. So until next time, thanks for watching. I'm Mike Pearson. Have a great week.