10 October 2006

6 minute read

North America

Weekly Purcell Agricultural Commodity Market Report Mike Roberts Agricultural and Applied Economics Virginia Tech

Weekly Roberts Report

LIVE CATTLE in Chicago (CME) closed lower on Monday with the OCT’06LC at $89.200/cwt, off $1.675/cwt and the DEC’06LC off $1.525/cwt at $87.825/cwt. Both contracts are about $2-$3 lower from this time last week. Technical selling developed taking futures sharply lower. Cattle were pressured by gains in corn, soybeans, and wheat. Friday’s disappointing cash cattle prices contributed to follow through bears on Monday. Cash cattle traded about $1-$2 lower last week at $90/cwt-$91/cwt in southwest feedlot markets. Packer margins remained in the red keeping them short of slaughter supplies. Additionally, volume was flat to lower in cash cattle due to concerns of rising feed prices. Fund liquidation in live cattle began on the opening bell as initial trades in December were under the 100-day MA. Adding more resistance Monday was the first notice day on the October. As a result, funds began rolling out of some October positions into December futures. USDA on Monday put the choice beef cutout up $0.05/cwt at $142.20/cwt. The average beef plant margin for Monday was placed down $5.50/head from a negative $48.40/head last Friday at a negative $53.95/head on Monday. This was $23.45/head lower than last week’s $30.50/head according to HedgersEdge.com. Effects of burdensome supplies and higher input costs are kicking in. Cash sellers should consider protecting a portion of 4th quarter ’06 and 1st quarter ’07 marketings at this point. Hedgers sensitive to the downturn in this market should be on short positions now. Corn users should hold off pricing inputs at this time while considering selling a put option.

FEEDER CATTLE at the CME closed down with the OCT’06FC off $2.275/cwt at $110.750/cwt. Posting a 16-week low, the NOV’06FC futures contract finished the day off $2.925/cwt at $108.325/cwt. JAN’07FC futures plunged the $3.000/cwt limit to $106.275/cwt leaving 200 sell orders unfilled at the close. As with live cattle, feeders were affected by the surge in CBOT grain futures. Higher corn prices increase feeding costs and hurt demand for feeders. Weakness in the back months of live cattle also made it tough to hedge feeder cattle, floor sources are quoted as saying. Technical selling and sell-stops developed to increase losses quickly. The CME Feeder Cattle Index for October 5 was off $0.55/cwt at $114.61/cwt. Cash sellers should consider protecting a portion of 4th quarter ’06 and 1st quarter ’07 marketings at this point. Hedgers sensitive to the downturn in this market are on short positions at this time.Corn users should hold off pricing inputs at this time while considering selling a put option.

CORN in Chicago on the Chicago Board of Trade (CBOT) finished higher a range of 6.4¢/bu to 18.4¢/bu with the DEC’06 futures contract closing at $2.894/bu, up 18.4¢/bu for the day and 21.8¢/bu higher than last Monday’s close. The new life-of-contract-high for DEC’06 corn futures was set after hanging above key moving averages and showing oversold status closing with a 9-day Relative Strength Index (RSI) of 70.12. A contract is considered technically oversold at or above 70 and technically overbought at or below an RSI of 30. The DEC’07 contract finished up 15.4¢/bu at $3.210/bu while DEC’08 futures rose 6.4¢/bu to finish $3.190/bu. Near the close of the day on Monday corn futures rallied to the 20¢/bu trading limit following binding, limit-up gains in the three, nearby CBOT wheat contracts, floor sources are quoted. The reason … dwindling world stocks of wheat and prospects for falling feed grain supplies late next year due to good demand for corn via exports, livestock, and ethanol interests. Believe it or not gains were slowed by harvest of a large U.S. corn crop. Corn exports have an overall nice pace but were quiet over the weekend. World stocks for corn are seen as dwindling for the 2006/2007 crop year. Cash bids were steady to mixed in the Midwest while steady to lower in the Mid-Atlantic states. Friday’s CFTC Commitments of Traders report showed funds expanding heavily bullish positions in CBOT corn for the week ended October 3. Producers may consider advancing 2006 crop corn sales another 10% to 60% and pricing another 10% to 30% of the 2007 corn crop. Demand indicates that a buying a call option in corn futures at this time may be a good idea.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed 4.0¢/bu to 15.0¢/bu higher on Monday. NOV’06 soybean futures closed up 10.4¢/bu at $5.744/bu. This close was 29.2¢/bu higher than this time last week. The NOV’07 soybean contract finished at $6.314/bu, up 11.4¢/bu and 24.0¢/bu higher than last week. One floor source talked to on Monday said, “This is all about wheat. Everything else has to go up at least a little to keep the spread relationship somewhat rational.” The rally was limited by record large stocks of soybeans and harvest showing a potentially record setting crop. Funds bought 10,000 lots. Exports were quiet over the weekend. Cash soybeans on Monday were steady to firm in the U.S. Midwest while solidly higher in the Mid-Atlantic states. Friday’s CFTC Commitments of Traders report showed funds pulling back from net short positions in CBOT soybeans for the week ended October 3. The NOV’06 contract stayed above its 50-day Moving Average (MA) of $5.613/bu which is an important price support point. Key resistance is at its 100-day MA of $5.883/bu. The NOV’06 soybean chart gives an indication that a double bottom has occurred with a measuring objective of $5.83/bu, just below the 100-day MA. Cash sellers not priced to 70%-80% of the ’06 crop by now have a chance to catch up on this rally as it may last for a few more days. If harvest proves to be a record one it will be time to take profits in long positions and for hedgers to place short positions protecting profits. The USDA World/Supply Demand Estimates will be out on October 12, 2006 and will either sustain this bull run or prove bearish quickly.

WHEAT in Chicago (CBOT) finished the day up with DEC’06 futures closing at $4.940/bu, up 30.0¢/bu and 28.0¢/bu higher than last week at this time. JULY’07 wheat finished at 4.790/bu, up 10.4¢/bu, and 13.6¢/bu higher than this time last week. Wheat on the CBOT led the charge with front months binding limit-up halfway through the trading day and staying that way until the close. Wheat futures were also up the limit on Monday in Kansas City. DEC’06 wheat in Kansas City (KCBT) closed up the 30¢/bu limit at $5.316/bu, leaving about 200 – 400 buy orders unfilled. Partly fueling the run were concerns for the next Australian crop dropping disastrously below 10 million tonnes (367 mi bu) further tightening world supplies. Active export demand around the world increased as new demand from Tunisia and Algeria added support. Also proving bullish was a Ukraine announcement on new grain export quotas to guard against shortages in that country. The Ukraine Agriculture Ministry lowered its 2006 grain harvest forecast to 34.7 million tonnes (1.28 bi bu), down 2.54 million tonnes (93 mi bu) from the previous production figure of 37.16 million tonnes (1.37 bi bu). Additionally, international wheat export data showed Russian wheat exports outside the Commonwealth of Independent States falling by 10.7% in January-August from the same period last year. Funds bought 5,000 lots with 1,000 lots unfilled. Cash wheat in the Midwest was steady to somewhat higher while in the Mid-Atlantic states wheat was slightly lower. Friday’s CFTC Commitments of Traders report showed funds moving to net-long positions in CBOT wheat futures/options combined for the week ended October 3. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Buying a call option may also be considered at this time.

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