14 March 2007

6 minute read

North America

LIVE CATTLE in Chicago on the Chicago Mercantile Exchange (CME) finished up mostly lower on Monday. APR’07LC futures closed at $102.025/cwt, up $0.575/cwt and higher than last week at this time by $4.525.cwt. This contract set a fresh high and is the highest level for a lead contract in over three years. The JUNE’07LC closed off $0.175/cwt at $98.425/cwt but higher than last Monday by $3.00/cwt. Unwinding bear spreads and active index fund rolling normally weigh on the nearby contract and support the June but the unusually large amount of traders in short positions getting out of the April contract caused the contract to be bid up. Floor sources stated that more traders were willing to compete with fund rolling in the wake of strong cash markets and falling corn prices. The CME placed estimated volume at 23,000 April contracts and 26,000 June contracts. The April contract was considered in overbought condition with the 14-day Relative Strength Index (RSI) at 71.50. This seemed to have little effect on that contract. An RSI over 70 is considered overbought and subject to price correction as chartists trade the technical signals. The market was supported by strong cash cattle markets. The Five Area Weekly Weighted Average Price showed $4.00/cwt-$5.00/cwt higher than last week. Some cash cattle sold for as much as $101/cwt-$103/cwt as packers bid up prices for market ready cattle supplies that have been reduced by winter storms. Packer margins were brought back into the black last week following the rise in wholesale choice boxed beef levels not seen in almost two years. USDA put the choice beef cutout at $162.86/cwt, up $2.98/cwt. According to HedgersEdge.com, the average beef plant margin for Monday was at a positive $15.35/head, $2.50/head better than last Friday and up $25.75/head from one week ago. Expect these higher cash prices and lower corn futures to create fresh demand for replacement feeders. Cash sellers should consider holding onto cattle a little bit; selling heavier weights on what could be a market uptick over the next two weeks. Now would be a really good time for corn users to price more corn.

FEEDER CATTLE at the CME closed mixed on Monday with the three nearby contracts up and later months mostly lower. The MAR’07FC contract finished at $105.775/cwt, up $0.625/cwt and $2.000cwt higher than last Monday. The APR’07FC contract closed up $0.500/cwt at $107.125/cwt and $2.100/cwt higher than last week at this time. Feeder cattle were supported by lower corn futures, fund buying and bear spread unwinding. The latest CME feeder cattle index for March 8 was placed at $101.37/cwt, up $0.57/cwt. Cash sellers should think about putting put more weight on feeder cattle for another couple of weeks, while pricing another portion of feed inputs at this time.

CORN on the Chicago Board of Trade (CBOT) closed down on Monday. The MAR’07 contract finished at $3.996/bu, off 8.4¢/bu and 17.6¢/bu lower than this time last week. The DEC’07 contract finished at $4.026/bu, down 5.0¢/bu and 6.0¢/bu lower than last Monday’s close. DEC’08 futures finished off 3.4¢/bu at $3.864/bu but 7.0¢/bu higher than this time last week. Corn was driven lower by expectations for more corn acreage and a $1/barrel slide in crude oil prices to $59/barrell. This led to fund selling, soybean/corn spreading, and sell-stops in the market. Funds sold between 8,000 and 9,000 contracts amid an estimated volume in CBOT corn of 246,872 corn futures and 68,093 options. These futures markets will remain volatile as companies release their estimates for U.S. corn and soybean acres. Trying to meet surging corn demand, producers are expected to plant the largest amount of U.S. corn acres seeded in 60 years. Last year 78.3 million acres of corn was planted. USDA has pegged the U.S. crop at 87.0 million while an elevator survey by Daniels Midland shows an increase in 2007 U.S. corn acres to a huge 88.5 million acres. All eyes are watching for the USDA Prospective Plantings report that will be released on Friday morning, March 30. Exports were fairly quiet. South Korea is reportedly seeking food-grade-only corn this week while other world-market buyers are expected to take a break from corn purchases. Unexplainably, producers remain sell-shy waiting on higher prices … despite the fact that corn futures prices continue near 10-year highs. Friday’s CFTC Commitments of Traders report for futures and options combined last Tuesday placed large speculators in long positions at 372,338 contracts, off 31,405 lots and those in short positions at 66,631 lots, up 8,935 contracts. Funds in long positions were pegged at 372,705 lots, up 1,501 from the previous week, while those in short positions shifted down 23 lots to 9,461 contracts. The APR’07 ethanol contract finished at $2.33/gal, up 0.050¢/gal. Primary support for the DEC’07 corn contract is placed at $3.992/bu with secondary support at $3.893/bu. DEC’07 corn could break out to the down side measuring objective of $3.665/bu filling the gap established January 12th if more bearish planting news is put out March 30, exports remain quiet, and South American corn gets good crop news. Hopefully cash sellers have forward contracted up to 50% of new crop corn by now. Hedgers should consider short positions in DEC’07 corn in the $3.95/bu range. This market shows signs of losing steam, at least through late March and early April, on declining crude prices and increasing crop acres.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday in soybean/corn spreading and bullish soybean crop news. The same ADM survey reported above in corn notes an 8.3 million drop in soybean acres. The MAR’07 contract finished at $7.552/bu, up 5.2¢/bu and 19.6¢/bu higher than this time last week. NOV’07 futures also closed up 4.4¢/bu at $7.804/bu but 7.6¢/bu lower than a week ago. Soybean futures are competing with corn futures for soybean acres. Combine nervous expectations about U.S. producer plantings and crop weather and you have one volatile market. This will likely continue through at least March 30. Volume in CBOT soybeans was estimated at 85,977 futures and 20,058 options. Cash sellers with 50%-60% of the ’07 crop priced are in good shape. WHEAT in Chicago (CBOT) were off on Monday with MAR’07 futures closing at $4.600/bu, off 5.4¢/bu and 8.0¢/bu lower than this time last week. JULY’07 wheat finished down 6.2¢/bu at $4.832/bu and 8.2¢/bu lower than last Monday. The sell off in corn and lack of any fresh bullish news proved bearish on wheat. Trade was light in CBOT wheat with 34,851 futures and 8,094 options being traded. Floor sources said the market struggled all day for price discovery. Funds sold some 2,000 lots. As with corn exports, soybean exports were quiet. USDA reported export inspections at 19.9 million bu, on the low side of the 17-23 million bu expected export range. Friday’s CFTC Commitment of Traders report had large speculators reducing long positions in CBOT wheat to net short positions for the week ended March 6 coming in at 12,517 contracts while funds trimmed net long positions in CBOT wheat to 193,962 lots. Producers with up to 60% of the ‘07 crop forward priced at this time are still in good shape.

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