5 December 2006

7 minute read

North America

CORN on the Chicago Board of Trade (CBOT) closed lower amid slumping oil markets on Monday. The DEC’06 futures contract closed at $3.626/bu, off 11.2¢/bu from Friday and about 10.0¢/bu lower than this time last week.

December ’07 futures were off 5.4¢/bu at $3.546/bu. As the main ingredient of ethanol, the price of corn is tied more and more to movement in crude oil. Expectations are that more corn acres are needed to fuel this ethanol boom. Pardon the pun. The need for more corn acreage next year to satisfy expanding ethanol demand is expected to prompt USDA to allow farmers to withdraw land from CRP without penalty and plant more corn. USDA declined to say if it would ease those restrictions on Monday. Technical selling begun last Friday fueled profit taking from overbought positions on Monday. The corn market remains susceptible to volatility and is vulnerable to sporadic setbacks after the last week’s highs. South Korea buyers announced they are interested in U.S. corn after recent prices lowered. In addition, expectations are that some exporters in China will not honor some of its lower priced contracts, several trading floor sources said. Argentina export commitments for 05/06 were down 31% from last year at 8.585 million tonnes (338 million bu). Cash corn in the Midwest was steady to firm early Monday due to slow farmer selling. The 2006 harvest is expected to wrap up this week. Friday’s CFTC Commitment of Traders report for futures/options combined showed that as of last Tuesday, funds in long positions were placed at 337,969 lots, down 21,417 lots from the previous week. Funds in short positions were placed at 53,504, down 15,100 lots. Corn producers may consider selling up to 20%-30% of the ’07 crop now. If storing is an option, storing the unsold portion of the ’06 crop for January delivery may be profitable as well. This market is so volatile that buying a call option may be considered but put a careful pencil to it before doing so.

SOYBEAN futures on the Chicago Board of Trade (CBOT) fell to a two-week low as the JAN’07 soybean contract closed down 17.4¢/bu from the last close at $6.592/bu. This was 29.4¢/bu lower than last week at this time. The NOV’07 contract closed down 18.2¢/bu at $7.080/bu. All months settled 13¢/bu – 18¢/bu lower. Soybeans were pressured by weakness in the corn and soybean oil markets and prospects for a larger Brazilian soybean crop, floor sources said. Funds drove the market in technical selling. Funds in long positions were extremely net long in soybeans and soybean oil. Sell-stops were executed in several places including January soybeans at $6.70/bu. Funds sold over 4,000 contracts in soybeans. Also bearish on soybeans were: a) talk that USDA might release CRP acres to corn production, b) good crop weather in South America, and c) a weaker Asian market in overnight trading. USDA reported export inspections for last week at 33.4 million bu, just above trade estimates of 33 million bu. Cash soybeans in the Midwest were steady to firm supported by slow farmer selling. CFTC Commitment of Traders report showed funds expanding long positions by about 10,000 lots. The NOV’07 contract looks like it is coming off an important high. The next chart signal in this contract may be a shoulder formation (following a previous shoulder and head) around $7.00/bu over the next fed days. The measuring objective would be around $6.549/bu if that happens. Cash sellers with should consider pricing up to 50% of new crop soybeans (’07 crop) at this time. Hedgers should think about short positions near $7.00/bu at this time.

WHEAT in Chicago (CBOT) ended lower with DEC’06 futures closing at $4.994bu, down 0.4¢/bu. JULY’07 wheat finished down 2.4¢/bu at $5.004/bu. Wheat was influenced by sell-offs in corn and soybean futures, no additional good news, and expectations of increasing corn acres. Most contracts rebounded off session lows at the close in light volume. Exports were generally quiet over the weekend with USDA reporting on Monday that 20.2 million bu of wheat were inspected for export. This placement was above the estimated range of between 14-18 million bu. Year-to-date export inspections were placed at 422.3 million bu, off 18% from a year ago at this time. Weather reports show recent snows and rains have provided the new crop with enough moisture for a while amid temperatures not cold enough to harm the crop. France is expected to triple its wheat sales to Tunisia to 500,000 tonnes (18.4 million bu) in 06/07. Argentinean weather was very helpful for harvest in that country. Farmers have harvested over 33% of the crop there. The CFTC Commitment of Traders report had funds expanding net long positions slightly in CBOT wheat futures for the week ended Nov. 28. Funds were net long 19,920 lots, up 287 lots from the previous week. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. It could be a good idea to forward price up to 30% of the ‘07 crop at this time. Hedgers should consider opportunities around the $4.80/bu range.

LIVE CATTLE in Chicago (CME) closed lower again on Monday amid technical selling by funds wiping out gains made in early trading. The DEC’06LC closed at $85.200/cwt, down $0.300/cwt. The FEB’07LC closed down $0.975/cwt at $88.125/cwt. Both contracts finished about $1/cwt lower than last week at this time. Three floor sources on the CME agreed that this sell off was more chart driven rather than fundamentally provoked. One fund bought early on but most all other funds sold late in the day noting declines in other commodities. Even though cold weather in most states was seen as supportive slowing weight gains in cattle additional weakness in futures should be noted by the expectation of more unsold cattle on the market from last week. This prompted lower cash calls. Cash cattle traded steady to $1/cwt lower on Monday with packer margins still hovering in the red. The average beef plant margin for Monday was estimated at a negative $24.70/head, up $7.25/head from last Friday’s negative $31.95/head but down $7.05/head from early last week, according to HedgersEdge.com. South Korea rejected a second shipment of U.S. beef for bone fragments creating angst in the U.S. meat industry who said these rejections aren’t encouraging to the upcoming talks on a proposed free-trade deal. USDA put the choice beef cutout at $142.16/cwt, up $1.05/cwt. Cash sellers are encouraged to keep marketings current pushing them off feeding floors as soon as they are ready. It is still wise to protect a portion of 4th quarter ’06 and 1st quarter ’07 marketings. Corn users should consider pricing more corn inputs at this time.

FEEDER CATTLE at the CME closed up on Monday with the JAN’07FC contract finishing at $97.725/cwt, off $0.300/cwt and $0.10/cwt higher than last week. The MAR’07FC contract closed up $0.525/cwt at $96.875/cwt. Both months rallied above the 10-day moving average at one time. Lower CBOT corn futures were supportive from the beginning of trading. Gains in feeders were limited by a sliding CME Feeder Cattle Index and weakness in some cash feeder sales late Thursday and Friday of last week. The CME Feeder Cattle Index for November 30 was placed at $99.62/cwt, down $0.19/cwt. Cash sellers are still encouraged to consider protecting a portion of 4th quarter ’06 and 1st quarter ’07 marketings at this point. Corn users should consider pricing more corn inputs at this time.

LEAN HOGS on the CME closed off on Monday with the DEC’06LH closing at $60.750/cwt, off $0.375/cwt and $1.70/cwt lower than last week at this time. The FEB’07LH closed off $1.575/cwt at $62.850/cwt and $2.90/cwt lower than last week. Slumping corn was not enough to support this market today. Fund long-liquidations began on the opening and accelerated when chart-based sell orders triggered near $63.700/cwt-$64.000/cwt in the FEB’07LH and continued as prices fell to six-week lows at the close. Fund selling initiated sell-stops despite forecasts for higher cash hogs several traders said. Cash hogs were mostly steady on Monday amid expectations of going even stronger on the impression that pork plants will need more hogs later in the week, likely moving cash hogs higher. Livestock dealers said hog shipments were not significantly affected by the colder weather and hogs backed up from recent bad weather will likely be at the plant by the end of the week. USDA put the pork carcass cutout on Friday at $65.07/cwt, down $0.49/cwt. The latest CME lean hog index was down $0.07/cwt at $62.52/cwt. According to HedgersEdge.com, the average pork plant margin for Monday was estimated at $3.20/head, down from $3.25/head last Friday and down $1.45/head from $4.65/head early last week. Spreaders were generally buying December and selling February. Cash sellers should continue to push hogs off the feeding floors as soon as they can be readied. Hedgers should be in short positions protecting 4th quarter ‘06 and 1st quarter ’07 pork production. Corn users should consider pricing more corn inputs at this time.

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