11 April 2007

7 minute read

North America

LIVE CATTLE in Chicago on the Chicago Mercantile Exchange (CME) finished up on Monday. APR’07LC futures closed at $100.90/cwt, up $.450/cwt and $1.900/cwt higher than last ago at this time. The JUNE’07LC also closed up and was the most actively traded on the day. It closed up $0.375/cwt at $96.70/cwt but only $0.30/cwt higher than last week. Fresh highs in feeder cattle and higher cash cattle prices were supportive of live cattle futures. Live cattle were less exciting … Er … stressful … amid light to moderate volume. One floor source was quoted as saying, “It was just a pretty dull day in live cattle.” Light supplies of market-ready cattle were noted as not providing futures with enough information to really get the trading engine going well. Wholesale beef prices moved sharply higher last week in reaction to grocery store buying seen as their positioning to be ready for springtime-cookout inventory needs. As a result, there is an expectation in the market that cash cattle will trade $1/cwt-$2/cwt higher at $101/cwt-$102/cwt in the Plains feedlot markets this week. USDA raised the choice cutout on Monday $3.10/cwt from last Friday to $162.68/cwt. This was $9.33/cwt higher than a week ago at this time. According to HedgersEdge.com, the average beef plant margin for Monday was placed at a negative $13.60/head, $4.70/head better than last Friday and a whopping $33.90/head better than one week ago! Cash sellers are still encouraged to be patient with sales this week. It is still a good idea to hedge feeder cattle purchases and an even better idea to forward price feed grain inputs at this time.

FEEDER CATTLE at the CME finished well on Monday. The APR’07FC contract closed up $.775/cwt at $111.90/cwt. The MAY’07 contract closed at $112.750/cwt, up $0.900/cwt. Some feeder cattle contracts started the day sharply lower before turning up later in the day. The August, October, November, and January contracts set fresh highs. Early selling in feeders was seen as a direct reaction to gains in corn futures. Feeder cattle rebounded after corn turned lower late in the day. The latest CME Feeder Cattle Index for April 4 was placed at $108.02/cwt, up $0.96/cwt and the highest since October 19, 2006. Cash sellers should think about selling feeder cattle when they are ready in order to take advantage of these good prices. Now is still a good time to lock in more grain inputs.

LEAN HOGS on the CME closed higher on Monday with the exception of the April contract. The APR’07LH contract closed at $65.025/cwt, off $0.150/cwt and dead even with last week at this time. MAY’07LH futures closed at $75.375/cwt, up $0.150/cwt and better than last week at this time by $0.375/cwt. The JUNE’07LH contract was the most actively traded on the day and closed at $75.825/cwt, up $0.2125/cwt. Forecasts for higher cash hogs throughout the week and higher prices on Monday were very supportive. Spreading action in June/April futures also supported prices. Hog numbers are viewed as seasonally tight at this time and cash prices are expected to remain steady to stronger in the coming weeks. USDA put the pork carcass cutout at $65.25/cwt, up $0.28/cwt on Friday. The CME Lean Hog Index was placed at $62.25/cwt, up $0.24/cwt. The average pork plant margin for Monday was up $0.50/head from Friday at $2.15/head. This was also better than one week ago by $1.85/head according to HedgersEdge.com. Cash sellers should try to sell hogs at the right weights while pushing them off the finishing floors as soon as they are ready. Hog feeders should be pricing more grain inputs at this time.

CORN on the Chicago Board of Trade (CBOT) closed lower on Monday. 2007 futures and the DEC’08 corn futures were off with the rest of the 2008 deferreds up. The MAY’07 contract finished at $3.634/bu, off 2.4¢/bu but 8.8¢/bu higher than last week at this time. The DEC’07 contract was the most actively traded and finished at $3.864/bu, off 0.2¢/bu but up 11.0¢/bu from last week. DEC’08 futures finished off 2.4¢/bu at $3.974/bu but 17.0¢/bu higher than this time last week. Trade was volatile on the day with May futures ranging 20.8¢/bu and the DEC’07 contract ranging 16.6¢/bu during trading. News that corn planting progress was slowed due to cold, wet weather supported the market. However, profit taking and a plunge in crude oil weighed on prices. Funds sold over 4,000 contracts. USDA placed export inspections for last week at 25.5 million bu, below the estimated range of 35-40 million bu. Reports that Chinese corn supplies will remain tight in the near future were also supportive. However, other reports from China indicate that the government is looking into ways to raise domestic production in order to avoid large imports. Cash corn in the Midwest was mostly steady on Monday amid sluggish producer selling. Cash corn in the Mid-Atlantic States was weaker due to heavy movement of corn last week to elevators as farmers cleaned out grain bins. The CFTC Commitment of Traders report showed large speculators (not including index funds) slashing bullish positions to 153,342 lots as of April 3. Weather markets have taken hold of the market. 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. Cash sellers should have considered being priced up to 40%-50% of next year’s production at that time. If you didn’t price corn last week, you should seriously consider pricing corn on these short term rallies while watching prices daily.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed lower on Monday trading in an ever-narrowing sideways pattern. If corn acres are moved into soybeans over the next few weeks look for bearish movement in soybeans. The MAY’07 contract was the most active, falling 11.4¢/bu on the day before finishing at $7.490/bu. This 28.9¢/bu plunge erased the 23.0¢/bu gain reported last week’s report. NOV’07 futures closed off 10.6¢/bu at $7.664/bu. This was a whopping 54.8¢/bu lower than a week ago! Soybeans followed corn and wheat off previous highs amid thinking that soybean acres will increase if corn planting weather continues to be dismal. A steep slide in crude oil also influenced beans lower. Some support was noted from weather reports slowing soybean harvest in South America. The photo at the end of the soybean report section in this report shows the effects of the 16+ inches of rain that fell over three days while I was in the Argentinean corn/soybean belt week-before-last. The soybeans are under water on the left, the cattle have been pushed up into the high ground in the middle of the photo, and the silage bunks are shown on the right. Funds sold over 3,000 contracts on Monday. USDA reported 20.2 million bu of soybeans were inspected for export last week. This was nicely above the 12-17 million bu expected. Cash soybean bids in the U.S. Midwest were mostly steady on Monday. Old crop and new crop cash soybeans in the Mid Atlantic States were sharply lower on Monday as producers took advantage of higher prices last week filling up country elevators. The CFTC Commitment of Traders report showed large speculators widening net long positions to 74,325 lots as of April 3. This data excluded index funds. Producers should have considered pricing up to 60% of the 2007 crop last week. If you didn’t, there is still time to take advantage of these prices before corn acres are turned into bean acres.

WHEAT futures in Chicago (CBOT) were mostly up on Monday except for the JULY’08 and DEC’08 contracts which were slightly off. The MAY’07 contract closed at $4.474/bu, up 2.4¢/bu and 19.4¢/bu higher than last week at this time. JULY’07 wheat futures were the most active contract on the day swinging 33.0¢/bu by the end of trading. It finished up 3.4¢/bu from last Friday’s closing at $4.620/bu. This was 7.6¢/bu lower than one week ago. Support was garnered from news of potential harm to new crop wheat as a result of recent bad weather and last week’s profit taking leaving room for upward price movement. Funds bought 1,000 contracts rolling out of May futures. USDA placed wheat-inspected-for-export data at 12.8 million bu, below estimates for between 15-20 million bu. The CFTC Commitment of Traders report had large speculators (not including index funds) growing net short positions to 38,373 lots in CBOT wheat as of April 3. Producers who have priced between 60%-80% of the ‘07 crop are in good shape. If you have not priced to those levels yet these rallies offer a great opportunity to do so.

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