17 October 2006

7 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 mixed on Monday with the OCT’06LC at $87.600/cwt, off $0.850/cwt and the DEC’06LC off $0.500/cwt at $87.425/cwt. Live cattle futures were mixed with the nearbys lower amid concern for higher feed costs pushing fed cattle to market sooner rather than later. Short covering followed last week’s declines as prices drifted lower in light early demand amid the lack of follow-through. Expectations for cash cattle are steady at best for the week. Cash cattle traded last week down $2-$3/cwt mostly at $88/cwt-$88.50/cwt with some prices to $87/cwt reported. Boxed beef was supportive as packers kept kill rates up providing a slightly firm tone to the market despite rumors last week they would reduce slaughter. Last week’s estimated kill rate was slightly under the previous week. Monday’s kill was reported at 125,000 head, much better than expected. Floor sources stated today they were still concerned that feedlot supplies are adequate and rising feed costs will push cattle into packer yards. Trader’s expectations are that beef packers will not reduce slaughter rates to any appreciable extent due to very high fixed costs. Deferred months were supportive on expectations for tighter choice supplies. USDA early on Monday put choice beef cutout at $144.44/cwt, up $1.00/cwt. Early estimates for Friday’s USDA monthly Cattle on Feed report for feedlots with 1,000 head or more placed the October on-feed supplies in a range of 107.6%-110% of last year at this time. September placement estimates ranged from 90.2%100% and marketing at 95.3%-100% of last year at this time. A lack of positive export news from Asia, added a bearish tone to the market. Cash sellers are encouraged to consider protecting a portion of 4th quarter ’06 and 1st quarter ’07 marketings. Hedgers sensitive to the downturn in this market should be on short positions by now. Corn users should hold off pricing inputs at this time while considering selling a put option.

FEEDER CATTLE at the CME closed up with OCT’06FC futures at $107.850/cwt, up $0.700/cwt. The NOV’06FC contract finished the day at $105.675/cwt, up $0.80/cwt. Lower CBOT corn futures in early trading on oversold conditions lent support to feeder cattle. Technical buy stops fueled early gains. The OCT’06FC contract 14-day Relative Strength Index (RSI) finished at 23.01. The RSI registered 14 at one point in the day. A contract is said to be oversold at 30 or below. Feeders started higher on short covering encouraged by the oversold condition but pared gains late when corn futures turned up and cattle futures slipped with the added weight on prices. Concerns over high feed costs are the same story in feeders. Late fund selling also added to setbacks in the nearby months. The CME Feeder Cattle Index for October 12 was placed at $111.79/cwt, off $0.50/cwt. This was also down $8.31/cwt since the record high set on September 7. Cash sellers are encouraged to consider protecting a portion of 4th quarter ’06 and 1st quarter ’07 marketings at this point. 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 6.0¢/bu lower to 3.0¢/bu higher with the DEC’06 futures contract closing at $3.166/bu, up 2.2¢/bu from the last close and 27.2¢/bu higher than last Monday. Three new life-of-contract-highs for DEC’06 corn futures have been set since then. The DEC’07 contract finished the day down 3.4¢/bu at $3.210/bu amid profit taking for it and other deferred futures contracts. The late surge in December wheat helped nearby corn futures. Floor sources say they are worried about tightening global feed grain stocks and potential rallies in wheat. Volume on the Chicago Board of Trade (CBOT) was estimated at 246,830 corn futures and 123,390 options contracts compared to Friday’s corn contract volume placed at 291,725 futures and 163,162 options. USDA placed the U.S. corn harvest at 41% complete as of Sunday, 12% from one week ago and within trade expectations for 41%-45%. Export news show prospects for Canada to import U.S. corn this year to make up for short feed-wheat production. USDA on Monday reported that 105,664 tonnes (4.2 mi bu) had been sold to Japan. USDA said that 41 million bu of U.S. corn had been inspected for export compared to trade export-range-estimates of 41-48 mi bu,. Cash-corn in the Midwest on Monday was steady to somewhat off due to rising cash prices last week. Cash bids in the Mid-Atlantic states were steady to slightly higher on Monday. The DEC’06 contract was well above all key moving averages and the 14-day Relative Strength Index (RSI) was near overbought status at 69.50. A contract is considered overbought at 70 or above. Friday’s CFTC’s Commitments of Traders report for futures and options combined showed funds increasing net long positions by 4,270 to 310,794 contracts and decreasing net short positions by 23,448 lots to 70,803 lots. Advice from last week still holds. Producers may consider advancing 2006 crop corn sales another 10% to 60% and pricing another 10% to 30% of the 2007 corn crop. Thinking that this corn crop may still come up shorter with ethanol demand increasing 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 futures on the Chicago Board of Trade (CBOT) closed mostly lower on Monday amid technical selling and profit taking. NOV’06 soybean futures closed down 2.4¢/bu at $5.890/bu. However, this close was 14.6¢/bu higher than this time last week. The NOV’07 soybean contract finished at $6.472/bu, down 2.0¢/bu but 15.8¢/bu higher than last Monday’s close. With the wheat market less volatile than last week, soybeans were quiet most of the day with little reaction to a late rally in wheat. Soybeans usually trade at a $2-$3 premium to wheat. This has changed. Soybean/wheat spreads were pushed to levels not seen in thirty years with news of wheat stocks reaching 25-year lows and soybean supplies at all-time highs. Weekly export inspection data provided market support with USDA reporting 38.6 milion bu inspected. This was above trade estimates for 25-35 mi bu. China bought nearly 15 million bu. Cash bids for soybeans in the U.S. Midwest were firm on Monday as dealers tried to encourage farmer selling even as farmers were busy in harvest and not too quick to sell while waiting on higher prices. USDA placed the soybean harvest on Monday at 69% complete, above trade estimates for 64%-67%. Argentina placed expected planted acres for the ‘06/’07 crop 3% higher than last year. Weakness in beans overhung other commodities. Cash sellers should consider remaining priced at 70%-80% of the ’06 crop. Harvest looks to be a record one.

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