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Meat supplies drop
USDA numbers were not friendly for corn Friday. Trade was looking for a slight reduction of corn carryout but instead the USDA simply left US carryout alone. That carryout translates to a May corn price of 640 which works well with Friday’s final trade of 642 3/4. Total world stocks fell slightly down to 124.530 million tonnes. Trade was expecting more than that but it was a slight reduction in all. Given that May finished at a price very close to what the carryout suggested, it can be said that corn followed the report accordingly. There was a large scale bounce to start the session which certainly appeared to be fund buying. We say that due to the scale, timing and the fact corn was one of many commodities to suddenly bounce Friday. There were rumors of China buying corn again Friday, but we have no reason to believe those rumors just yet. Old crop traded as expected which helped to pull the new crop up slightly. As mentioned previously, we do look for the December corn to drift lower from here leading into the March 30th acreage report. As of right now, it looks like a change in weather forecasts or more fund-buying could offer support to slow or prevent this grind lower. Through all of the fund buying we saw December hit a high of 658 which is appropriate as once again it failed to bounce to previous highs of 575. Any area in the high 560’s to anywhere in the 570’s continues to be an attractive sell/hedge level for new crop.
Chinese Purchases: The last announced sale of US corn to China was the morning of February 23. That sale was likely wrapped up using the closing price on the 22nd of 641.
- (2/15) Sold April 640 straddle at 35, risk to 50, objective 0 or at option expiration. Closed 24 1/2.
- (2/28) Sold April 660 calls at 12, risk to 22, objective 0 or at option expiration. Closed 6.
Live Cattle Fundamentals
The meat industry has an awkward way of matching supplies against demand. It more or less supplies a perishable product to the market and afterwards asks whether consumers liked that amount or not. The signaling mechanism for consumers on their appetite for it is price. The meat balance sheet is a little different than grains. We are not looking at the amount “left over” but at the amount consumers used in a period of time and the price they bought it at. Production minus net exports minus left over stocks = product supplied. As you can see here, over the past few months USDA has been increasing its estimate of supply for the consumer in 2012. It is still showing a big decline versus last year, just not as much of a drop. The bulk of this year’s decline will be in the second half of the year. Q3 beef production is seen 4.7% lower while USDA’s Q4 production estimate shows 7.1% lower than last year. The meat industry’s awkward way of supplying demand really hurts when it supplies too much. In this year’s case, and next year’s too, we will see a mad scramble for the few supplies available. For the short term, hold hedges applied on Monday’s 127.27 open. We may have a moderate rebound later this month but the general trend of falling from spring into summer should hold. For later 2012 contracts we remain extremely bullish…
- (9/07) Sold 2 April 118 puts 2.57 each, risk to 1.00, objective 0. Closed 0.25.
- (11/23) Sold 1 April 122 put 2.67, risk to 1.30, objective 0. Closed 0.62.
- (1/24) Sold 1 August 122 put 2.15, risk to 3.50, objective 0. Closed 2.45.
- (1/24) Sold 1 April 124 put and 1 April 133 call 2.77, risk to 2.95, objective 0. Closed 1.35.
- (2/1) Sold 1 October 128 put 3.42, risk to 4.90, objective 0. Closed 3.60.
- (2/1) Bought 1 October future and sold 1 October 136 call. On entire position risking 3.50 from entry, objective 7.00 from entry. Futures bought at 132.27 and closed today at 131.70. Call sold at 3.70 and closed today at 3.25. Net position -$0.12.
- (2/13) Bought October/sold June 5.50, move risk to 5.85, objective 8.00. Closed 7.20.
- (3/1) Bought December/sold June 7.50, move risk to 7.25, objective 10.00. Closed 8.65.