9 January 2007

6 minute read

North America

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

Live cattle in Chicago (CME) closed up on Monday. The FEB’07LC closed at $93.250/cwt, up $0.675/cwt and up a whopping $6.425/cwt from three weeks ago. The APR’07LC closed up $0.975/cwt at $94.450/cwt, higher by $3.750/cwt over three weeks ago.

Hedge lifting, weather forecasts and weakness in feed grains supported gains early on. Initial gains were cut in late spreading action. The winter weather has cut into supplies with reports of two packers shutting down on Monday due to insufficient supplies. Some reports are surfacing that other packers may have some “black” days this week due to slow inputs because of current bad weather and recent bad weather robbing stock of gains. USDA’s Five-Area Cash Cattle report showed cattle up almost $1/cwt over last week near $89/cwt but $5/cwt lower than last year at this time. USDA on Monday put the choice beef cutout at $148.80/cwt, up $1.01/cwt, its highest since September 12, 2006. The Goldman/Sachs roll started on Monday accounting for 4,000 April/February spreads on the day, of which 2,500 lots were done last thing in spurting floor activity. During the month prior to delivery, the Goldman Sachs Commodity Index fund’s long positions are rolled forward between the fifth and the ninth business days. Cash sellers are encouraged to push marketings if they can get them out of the pens at the right weights. It may be wise to consider protecting a portion of 3rd quarter ’07 marketings at this time. Buying a Put option may not be a bad idea but put a pencil to it before doing so. Corn users should consider pricing more near-term corn inputs now.

FEEDER CATTLE at the CME closed higher along with live cattle on Monday. The JAN’07FC contract finished at $98.875/cwt, up $0.225/cwt but $1.15/cwt lower than three weeks ago. The MAR’07FC contract closed up $0.200/cwt at $97.850 and nearly even with numbers reported in this report three weeks ago. Both the 4-day and the 20-day MAs have turned down in the MAR’07 contract. Feeders were supported by losses in feed grains. Gains occurred despite the forecasts for another winter storm in the Plains. Most of the time harsh winter storms are bearish for feeders since the weather can turn feedlot pens into sloppy mud holes and reduce the demand for them from feedlot owners. At times like these, feedlot owners mainly want to just take care of what they already have. There was a weak tone for cash feeders in Oklahoma City on Monday. The latest CME Feeder Cattle Index, for January 4, was up $0.04/cwt at $99.18/cwt. Cash sellers are encouraged to push feeder sales. Hedgers may be wise to consider protecting a portion of 1st quarter ’07 and 2nd quarter ’07 marketings. Corn users should consider pricing more near-term corn inputs now.

CORN on the Chicago Board of Trade (CBOT) closed lower on Monday. The MAR’07 futures contract closed at $3.634/bu, off 4.6¢/bu but only down 2.3¢/bu from 3 weeks ago at this time. The DEC’07 contract finished at $3.646/bu, down 0.4¢/bu from the last closing. The DEC’08 contract finished up by 0.2¢/bu at $3.542/bu. The corn market is seen as weighed down by: expectations that funds will soon start adjusting portfolios to include less wheat and corn; disappointing weekly export data; and what looks to be prospects for big corn acreage increases for 2007 in the U.S. Fund activity included selling 4,000 to 5,000 lots. USDA reported 22 million bu were inspected for export last week, well below the 35-40 million bu expected. There are some reports of Chinese corn production rising by up to 2% for the 2007 crop. The 4-day moving average (MA) for the MAR’07 corn contract closed below the 10-day MA of $3.79/bu last Wednesday and below the 20-day MA of $3.744/bu last Friday. This could be an indication that corn will could down further off of what looks like a double-top formation. Cash corn was steady on Friday amid quiet sales. Both old and new crop cash corn in the Mid-Atlantic States open higher amid strong elevator demand. The JAN’07 ethanol futures contract closed up 5.0¢/gal at $1.755/gal on fresh news that Cargill was thinking about investing in up to 4 new plants with a combined 100 million gallon output. Corn producers should consider selling up to 20%-30% of the ’07 crop. Buying a $3.65/bu Call option for 15.2¢/bu may be worth it to protect the bottom side while leaving upside potential open. This market is still very volatile.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed off with the JAN’07 soybean contract finishing at $6.650/bu, off 3.0¢/bu. The NOV’07 closed down 2.0¢/bu at $7.250/bu but 18.4¢/bu higher than three weeks ago. Weekly export data, good crop weather in South America, and a very big supply of soybeans weighed on the market today. USDA reported 12.0 million bu of U.S. soybeans were inspected for export last week, very much below the expected 25-30 million bu. Argentina producers have nearly completed planting the 06/07 crop according to the Buenos Aires Grain Exchange. Cash soybeans were steady to firm amid slow farmer sales. Soybean bids were prompted higher by slow farmer sales last week in the U.S. Mid-Atlantic States early on Monday. Cash sellers should still consider pricing up to 50% of the ’07 crop. Hedgers who placed short positions near $7.00/bu in the NOV’07 contract three weeks ago are in good shape but need to keep a watchful eye on when to get off those positions. Buying a $7.20/bu Put option for 57.0¢/bu may not be a bad idea. Everything is still in the works for this market to go bearish.

WHEAT in Chicago (CBOT) ended off on fresh three-month lows on Monday amid expectations that funds will soon start getting rid of wheat and corn holdings. MAR’07 futures closed at $4.640/bu, down 6.2¢/bu from the last closing and off 23.4¢/bu from three weeks ago. JULY’07 wheat finished lower by 3.4¢/bu at $4.734/bu and off 10.6¢/bu from three weeks ago. Deferred months ended down 0.2¢/bu - 5.0¢/bu. Funds ended up selling over 3,000 lots, floor sources stated. USDA reported 10.6 million bu of wheat were inspected for export amid expectations of 15-20 million. Year-to-date inspections were off 20% from last year at this time at 495.6 million bu. Sluggish sales amid uninspiring import demand from other countries are suppressing the market. Traders also noted favorable crop weather in the U.S. winter wheat belt as new storms bring beneficial moisture. Also weighing on the market were reports that Indian wheat farmers were planting 7% more wheat this year emphasizing expectations of a rebound in world wheat stocks. China sold 663,926 tonnes (24.4 mi bu) from official state wheat reserves trying to stabilize wheat prices in that country. A grains official for China announced they would continue to sell wheat every week through late spring. The 4-day MA for wheat in both the MAR’07 and the NOV’07 contracts have fallen below the 10-day and 20-day MA. This technical signal will also pull at prices. Wheat in the MAR’07 contract were technically oversold at an RSI of 28 last week but have rebounded somewhat today. A Relative Strength Index (RSI) of 30 or below is said to be an oversold signal to traders. Cash bids for the ’06 crop were steady in the Mid-Atlantic States amid slow farmer sales. Most farmers have already sold the wheat crop here. With local cash bids still over $4.00/bu, it might be a good idea to forward price up to 50% of the ‘07 crop at this time. Hedgers on short positions around $4.75 from advice from three weeks ago are in good shape. Hedgers not on positions yet should consider opportunities around the $4.70/bu range in JULY’07 futures.