4 April 2007

6 minute read

North America

News travels fast, even to South America. I learned last Friday while in Rosario, Argentina that the USDA World Agricultural Supply Demand Estimates (WASDE) report showed corn planted acres increasing 15.5% over last year. It’s been said before but bears repeating, if all these acres are planted the result will be the largest corn acreage since 1944. Most of the 12.127 million acre increase to 90.45 million acres comes from a reduction of 8.382 million acres of soybeans (planting 67.14 million acres) and a reduction of 3.127 million acres of cotton. Planted wheat acres increased 3 million acres to 60.30 million acres. Many producers priced some corn but if history is consistent, not as much as one would expect. Farmers don’t like to price more than they think they can deliver and many farmers didn’t like the forward prices they took in the spring of 2006 only to see prices climb later on. Several analysts think that many farmers passed on $4.00/bu corn waiting on $5.00/bu corn … let’s hope not. However, I too am in the camp that thinks there is a lot more forward priced corn now than there was 12 – 18 months ago.

LIVE CATTLE in Chicago on the Chicago Mercantile Exchange (CME) finished higher in style on Monday. APR’07LC futures closed at $99.00/cwt, up $1.400/cwt and $1.200/cwt over two weeks ago at this time. Support in this contract is now at $97.800/cwt. The JUNE’07LC closed up $1.525/cwt at $96.40/cwt, and $1.55/cwt higher than the last report. Cattle were up on a sharply lower corn market and strong technical signs generated by fund activity. Both months posted two week highs after live cattle set a record open interest of 303,659 contracts on Friday. Higher cash cattle prices were also supportive. Cash cattle opened higher Monday morning and are expected to trade $1/cwt-$2/cwt higher this week. Seen as supportive of packer margins, USDA on Monday reported choice beef cutout at $152.72/cwt, up $0.86/cwt from Friday. The average beef plant margin for Monday was estimated at a negative 3 $47.50/head, down $0.95/head from last Friday and $29.75 worse than one week ago at this time, according to HedgersEdge.com. News that the US had reached a trade agreement with South Korea did not draw much support as it is generally viewed as old ground. The market is keeping an eye turned to actual export results to that country. Cash sellers may want to be patient with sales as prices may get a little better. However, it may be a good idea to hedge feeder cattle purchases and forward price feed grain inputs at this time. The fundamental picture of corn demand for ethanol has not gone away.

FEEDER CATTLE at the CME finished higher on Monday. The APR’07FC contract closed up $1.450/cwt at $107.925 … 110.2/cwt and $2.275/cwt higher than two weeks ago. The MAY’07 contract closed at $111.225/cwt, up $1.250/cwt.Feeders provided the direction for cattle with most months running to fresh highs following yet another limit-down move in CBOT corn. Floor sources state they are thinking feeders may go to the $120s. Unless there is a fundamental change in ethanol demand corn will come back to compete with feeders sooner rather than later. Growing long positions by funds were supportive. The CME Feeder Cattle Index for March 29 was up $0.05/cwt at $105.59/cwt. Cash feeders seem to be bidding up in anticipation of higher live cattle over the next two weeks. Cash sellers should think about selling feeder cattle when they are ready in order to take advantage of these good prices. Now is a good time to lock in more grain inputs.

CORN on the Chicago Board of Trade (CBOT) tumbled again on Monday with the exception of the DEC’08 corn contract, which gained 0.2¢/bu.The MAY’07 contract finished at $3.546/bu, off 19.6¢/bu and 43.4¢/bu lower than two weeks ago at this time. The DEC’07 contract finished at $3.694/bu, off 14.0¢/bu and 36.6¢/bu lower than two weeks ago.DEC’08 futures finished up 0.2¢/bu at $3.804/bu but 13.0¢/bu lower than this time two weeks ago. The market plunged 5% last Friday after the USDA WASDE report was released and was off another 5% at the close on Monday. We all know why … corn acres are not only up but over what most expected. The highest estimate noted two weeks ago was an increase to 90 million acres rather than 90.45 million acres.I’ve said many times in many extension meetings this winter that the American farmer knows how to produce. It is worthy to note, however, that the market did end above the 20.0¢/bu limit-down point. On the other hand, news of dry weather in Alabama and a soggy Midwestern corn belt amid heavy, soaking rains on already saturated fields was viewed as somewhat supportive. The jury is out on how many acres there will truly be at the end. Those corn acres planted in pastures that have not seen a plow in 20 years will also have to come to the market sooner or later. Exports were generally seen as not news-worthy. Weather markets will begin to take hold of the market now. Two weeks ago this report stated that this market still showed signs of losing steam, at least through late March and early April, on declining crude prices, increasing crop acres, and now shaky ethanol support from the U.S. government. Hopefully cash sellers are priced up to 40%-50% of next year’s production at this time. If not, it’s not too late to start.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday trading in a choppy, sideways pattern since March 1, 2007. The MAY’07 contract finished at $7.779/bu, up 17.6¢/bu and 23.0¢/bu higher than this time two weeks ago. NOV’07 futures also closed up 16.2¢/bu at $8.212/bu and 18.2¢/bu higher than a week ago. Today’s action is generally viewed as a recovery from last Friday’s sell off after following corn lower. Soybeans diverged from corn gaining momentum when corn began to recover near the end of the session.Two floor sources noted today that if the corn/soy price relationship tightens up and there is a spring delay in corn seedings due to wet weather, traders think that corn acres will switch back to soybeans proving bearish on current prices. The huge soybean crop that I saw over the last two weeks I spent in Argentina will further pressure prices in the coming days. The soybean crop there has had amazingly good growing weather. However, recent rains are slowing harvest. One thing South American growers have going for them is there convenient portable bag-storage system that allows them to store their money right there on the farm and move no more and no further than what they have to. Additionally, it is noteworthy to say that one thing the soybean market has in common with the corn market is that a weather market looms on the horizon. Producers should consider having at least 60% of the 2007 crop priced. These prices held prior to March 30 but all bets are now off for the next few days.

WHEAT futures in Chicago (CBOT) were off on Monday with the MAY’07 contract closing at $4.280/bu, off 10.0¢/bu and 27.0¢/bu lower than two weeks ago at this time. JULY’07 wheat futures finished down 8.6¢/bu from last Friday’s closing at $4.696/bu but nearly even with two weeks ago. A bullish tone to soybeans supported wheat. Inter-market spreading in December wheat/corn was also supportive. Both floor sources spoken to on Monday saw traders as still reflecting on what last Friday’s USDA plantings report means for the wheat market after corn took a beating, soybeans found support and wheat acres were reported up some from last year. The CFTC Commitment of Traders report showed funds and large traders widening net short positions slightly. Producers who have priced between 60%-80% of the ‘07 crop are in good shape.