Forage Prices Rise As Market Watches Corn

5-6-14 – While traders are concentrating on corn seeding progress, cattle producers are looking at forage potential for the summer and fall, and rising prices could thwart herd-expansion plans.\r\n\r\n Hay prices rose in April from March, although the benchmark price remains below a year ago, according to the latest USDA Agricultural Prices report. The average all-hay price in the 27 reporting states was $191 a short ton in April, up $18 from March but down $4 from $195 a year earlier. \r\n\r\n As might be expected, California reported the highest price at $239 a ton as drought continues to ravage the state. Missouri hay was the cheapest at $94 a ton.\r\n\r\n And other western states may not be able to help California cattlemen much. Limited water supplies in Oregon are expected to constrict grass hay production, which likely means higher prices.\r\n\r\n Elsewhere, there are indications of active insect populations in alfalfa that could lower production. Missouri entomologists report strong populations of weevils this spring that are cold-weather hardened to insecticides. \r\n\r\n If ranchers see continued forage shortages, they may have no choice but to liquidate all or a portion of the heifers they held for breeding. This could put a short-term surge of feeders on the market to pressure prices, but more than likely they will be dribbled into the market at such a slow pace that prices aren’t affected noticeably.\r\n\r\n \r\n\r\nDROP CREDIT SUPPORTING CATTLE PRICES\r\n\r\n \r\n\r\n Slaughter-ready cattle prices were about $1 higher last week in spite of lower boxed-beef prices, and one reason for the strong packer demand may be a lively hide and offal market with prices well above last year and the five-year average.\r\n\r\n The total hide and offal value, called the drop credit, reported by the USDA last week was $15.82 per cwt. That was down 0.3% from the $15.86 reported a week earlier but 10.7% higher than the $14.29 reported the same week a year ago.\r\n\r\n Last year, the drop credit rose from $13.21 the first week of January and broke above $14.00 the third week of March. It then held in a range between $14.00 and $15.00 for the rest of the year.\r\n\r\n The average tendency is for the drop credit to rise pretty steadily into the first week of September and then taper into mid-December.\r\n\r\n Last week’s drop credit adds about $125.29 to the value of each animal slaughtered for packers, and since most of these items are export products, they like to protect their market share with reliable, albeit higher-priced, deliveries.\r\n\r\n \r\n\r\nBEEF MARKETS LACK SPARK\r\n\r\n \r\n\r\n However, boxed-beef markets lacked spark Monday. The USDA reported its choice cutout value at $228.90 per cwt, a gain of $0.52 from Friday, but select was down $2.02 at $215.45. The choice/select spread widened to $13.46, and there were only 84 loads of fabricated product sold into the spot market.\r\n\r\n That could indicate lackluster weekend beef demand, but it also could mean grocers are booked up into the Mother’s Day weekend.\r\n\r\n Price pressure in beef markets also could be from increased slaughter last week and higher beef production in spite of slightly lower weights. \r\n\r\n The USDA estimated slaughter last week at 608,000 head, versus 585 a week earlier and 622,000 a year earlier. Dressed weights were down a pound at 792, but beef production, at 480.6 million pounds, was up from 462.8 million a week earlier and off only 2.8 million from a year ago.\r\n\r\n The CME Feeder Cattle Index for the seven days ended Friday was $180.83, up $1.27, while the May futures contract settled Monday at $182.65, down $0.85. June live cattle settled at $137.52, down $0.52.\r\n\r\n \r\n\r\nIN OUR OPINION\r\n\r\n \r\n\r\n–Black Box funds are eying a push above $5.06 in May corn to start accumulating for a mid- to longer-term hold as May approaches the 50% retracement level from 52-week highs\r\n\r\n–Escalating conflict in Ukraine likely won’t affect crop production and exports – unless there is all-out war.\r\n\r\n–China’s manufacturing is slowing, but macro traders appear willing to let it slide for now.\r\n\r\n–Hot weather in the Plains is baking wheat