Record-low cattle herd could herald profits surge

by Agrimoney.com

Data due on Friday expected to show the US cattle herd shrinking to its lowest on record could represent a marker on the road to a far more profitable ranching sector.

The US Department of Agriculture is due later, in a twice-yearly report, to show the domestic cattle herd falling by 1.4% from July 1, dropping below 100m head for the first time since the series began in 1973.

The decline is seen in part down to the sector's greater productivity since the spread of feedlots, which has allowed producers to shorten fattening periods while increasing animal weights.

US producers are expected to produce some 26m pounds of beef, nearly one-quarter more than in 1973, despite a herd which has shrunk by one-quarter over the same period.

But it is also "a reflection of the fact that grain farming is more profitable than cattle ranching", Don Roose, president of broker US Commodities said.

"It has been more profitable for farmers to tear up pastures and replace them with crops."

Supply squeeze ahead?

However, the extent of the decline in the cattle herd may swing the pendulum of profitability back towards ranchers, once high beef prices persuade the industry to go back into expansion mode, a report by Paragon Economics and Steiner Consulting said.

Expectations for USDA cattle herd data, as change in year to July 1 All cattle and calves: -1.4% Cows and heifers that have calved: -1.3% (Includes beef cows: -1.9% And dairy cows: -0.1%) Annual calf crop: -1.5% Source: Dow Jones survey

The increased beef production has come against a background of population growth to 7bn people worldwide, from 4bn people in the early 1970s.

"Increasing global incomes, lower trade barriers and more fluid markets have led to ever-rising beef demand globally," the briefing said.

"All of this will put more pressure on US beef prices long term, and cattle prices will rise to points that once again make it profitable to invest in this business."

Indeed, if cattle prices appear high now - with futures in both feeder animals, ready for placement in feedlots, and live animals, ready for slaughter, within 10% or so of record highs – "they will be even higher when producers finally decide to hold back heifers for herd rebuilding".

Friday's report is expected to show the calf crop falling 1.5%, implying some 2m fewer calves produced than five years ago.

'No feed in Texas'

One factor which has held back cattle production this year is the drought in the US South which has threatened pasture on an area home to roughly one-third of the US herd.

Expectations for USDA cattle on feed data, as year-on-year change Total cattle on feed, July 1: +2.7% Placed on feedlots in June: -6.6% Marketed in June: +2.8% Source: Thomson Reuters survey

Indeed, the dryness has been seen as a major impetus behind a jump in placements, even of smaller than-usual cattle, on feedlots, until a sharp slowdown in June.

Analysts are divided over whether a separate USDA report on Friday, a monthly census on feedlots, will show buy-ins of feeder cattle remaining weak last month, or whether the dryness revived placements.

At Country Futures, Jerry Stowell, while forecasting a 10% slide in placements for June, said the number "could be up 20% for July" because of the shortage of fodder.

"There is no feed in Texas – no hay, no nothing," Mr Stowell said.

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Official corn and soy harvest estimates 'too high'

by Agrimoney.com

Lanworth, the analysis group which draws crop estimates from satellite data, has pegged the US corn harvest 570m bushels below government estimates, warning of weather damage and lower sowings than officials are counting on.

The prominent consultancy, which was also more downbeat that the US Department of Agriculture on prospects for the country's soybean output, said that yields of both the oilseed and corn would come in close to trend in the important agricultural states of Illinois, Iowa and Nebraska.

However, surrounding areas would see losses of 7-9%.

"The largest losses are expected in the eastern Corn Belt, where historically delayed planting under wet conditions has been followed by hot and dry conditions, and in drought-affected Southern areas," Lanworth said.

"Imagery confirms extremely low vegetation density in eastern Indiana, central and southern Kansas, northwest Ohio, and southern Michigan."

Harvest estimates

Corn sowings were, on a harvested basis, pegged at 83.99m acres for corn, some 900,000 acres below the USDA figure.

The data led to a production forecast of 12.90bn bushels, below an official forecast of 13.47bn bushels.

For soybeans, the estimate for harvested acreage was pegged bang in line with the government expectations, although a production figure of 3.07bn bushels was 158m bushels below the USDA forecast.

The estimates, from a consultancy with a solid forecasting reputation, come at a time when supplies of both crops are already expected to be tight, and were attributed for supporting futures prices on a day when forecasts for rainier weather might have been expected to encourage selling.

"It could be why markets have been reluctant to pullback much even with rain falling in Chicago," a US broker told Agrimoney.com.

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Sugar futures jump on - another - Brazil downgrade

by Agrimoney.com

Sugar prices jumped 5% after Kingsman joined analysis groups cutting forecasts for Brazil's sugar output, blaming the age of the cane following two years of low replanting rates.

The influential consultancy cut by 35m tonnes to 525m tonnes its forecast for cane output in Brazil's Center South region – the top producing area in the main sugar-producing country.

Sugar production was pegged at 31.9m tonnes a figure which, while higher than a 30m-tonne estimate on Thursday from Brazilian consultancy Canaplan, was below the benchmark figure of 32.4m tonnes set by Unica, the cane industry group, last week.

Kingsman's stance was also viewed with particular interest as it has been one of the more upbeat on hopes for the world sugar production surplus in 2011-12, earlier pegging it at 10.6m tonnes.

'Terrible shape'

At Macquarie, analyst Kona Haque said: "The downgrades to Brazilian estimates keep on coming.

"Our colleagues in Brazil say the cane is in terrible shape. It is old, and is not going yield any better going forward," leaving the country on track for its first drop in production in a decade.

Brazil, which is also the top sugar exporter, "is likely not crushing fast enough to satisfy importers."

While Macquarie estimates the world surplus at 5m-6m tonnes in 2011-12, the impact of this in extra supplies from alternative producers such as India was not likely to be felt until November at the earliest.

Raw sugar for October hit 31.55 cents a pound in New York, a contract high, and the best price for a near-term lot since February, before easing to stand at 31.46 cents a pound in late deals, up 5.4%.

In London, white sugar for October closed 4.0% higher at $812.70 a tonne.

Feeling the cold

Kingsman attributed its downgrade to concerns that "the effect to two consecutive years of low renovation rates" in Center South cane planting was "stronger than expected".

Indeed, the low level of resowings - a hangover from the global economic crisis, and its impact on sugar enterprises with stretched balance sheets – "may be exacerbating the impact of the recent frost affecting certain planting areas".

The group noted that this was the second season when a lack of cane, rather than milling capacity, had limited Brazil's sugar output, highlighting too that concentrations of sugar per kilogramme of crop were among the lowest of the last decade.

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Cocoa prices at risk of 'precipitous collapse'

by Agrimoney.com

Cocoa prices are at risk of "precipitous collapse" if prospects for supplies improve further, ABN Amro warned as it raised its outlook for world production of the bean and a slowdown in consumption growth.

The bank lifted by nearly one-half to 227,000 tonnes its forecast for the cocoa output surplus in 2010-11, highlighting an "extremely good season" for farmers in countries such as Ghana and Ivory Coast, the world's biggest producers.

"In West Africa, the main crop has been excellent," said the bank, whose research is undertaken with VM Group.

However, prospects for consumption looked weak, given the "gloomy clouds" hanging over European and US economies, where austerity measures have "yet to feed through into daily lift.

It was "doubtful" that a rise in cocoa grindings evident in recent months "is sustainable – after all, chocolate is one item in the weekly shopping basket that does not have to be bought".

'Collapse could be precipitous'

While the bank stuck by a forecast of cocoa production returning to deficit in 2011-12, by some 93,000 tonnes, it warned that this depended on an "optimistic" view of consumption.

If industrialised nations, by far the biggest chocolate consumers, struggled, and the production outlook improved, the market faced conditions far less supportive to prices, which remain at historically high levels.

"The price collapse could be precipitous," ABN said.

Indeed, it was already a "wonder" that the price "remains so persistency high", given the political resolution in Ivory Coast which has allowed the shipment of about half the 470,000 tonnes of cocoa stockpiled during export curbs imposed by Alassane Ouattara during his battle to assume presidency.

Port arrivals

The report came as Ivory Coast's Coffee and Cocoa Bourse (BCC) reported that bean arrivals at the country's ports had reached 1.33m tonnes since the beginning of the 2010-11 marketing year in October, up 24% from the same period the previous season.

And it came as prices indeed dipped, falling 1.3% to £1,945 a tonne in London for September delivery, and by 1.2% to $3,135 a tonne in New York, for the same month.

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EUR Breakout or a Third Lower High

by Bespoke Investment Group

Positive news out of Europe regarding Greece sent the Euro back above its 50-day moving average today. Before investors will feel more comfortable going long Euros, however, the currency will have to break its short-term downtrend as well as its string of lower highs.

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Second Quarter Earnings and Revenue Beat Rates

by Bespoke Investment group

Since last Monday when earnings season began, 345 US stocks have reported their quarterly numbers. As shown below, 70% of these companies have beaten earnings per share estimates, while 71% have beaten revenue estimates. Both of these numbers are high relative to prior quarters during the current bull market, but they also both typically pull back as earnings season progresses.

Last season, the earnings beat rate came in at its lowest level of the bull market. As of now, it appears as if the beat rate will be stronger this quarter, which is a good sign. The revenue beat rate wasn't all that bad last quarter, and it will be pretty impressive if we can see a quarter-over-quarter increase when all is said and done this season.

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