9 May 2007

7 minute read

North America

LIVE CATTLE on the Chicago Mercantile Exchange (CME) finished lower on Monday. The JUNE’07LC contract closed at $91.950/cwt, off $.225/cwt and $2.175/cwt lower than last week at this time. The AUG’07LC contract closed at $90.70/cwt, down $0.175/cwt and $1.900/cwt lower than last Monday’s close. Active fund rolling provided most of the volume as futures prices fell amid expectations for lower cash prices for the rest of the week. The market found support in lower corn prices later in the session. The Goldman-Sachs roll began rolling long June positions into August in earnest. This is expected to influence the market for the rest of this week. During the month prior to delivery, index funds roll long positions forward from the fifth to the ninth business day. Estimated volume for rolled contracts was placed between 4,000 and 5,000 lots. Even though cash cattle rebounded late last week and choice box beef was firm on Monday, traders thought cash beef prices may trend lower into the summer months after holiday beef purchases begin to wind down. USDA reported the 5-Area Weekly Weighted price at $96.150/cwt, off $0.14/cwt from last week but $17.850/cwt higher than last year at this time. USDA put the choice beef cutout on Monday at $156.23/cwt, up $0.90/cwt. The cutout value on Friday was the lowest it’s been since April 3. According to HedgersEdge.com, the average beef plant margin for Monday was a negative $18.65/head, $0.05/head better than last Friday but $9.60/head worse than last week at this time. Cash sellers are strongly encouraged to cattle sold this week. It might also be wise to price a little more corn again this week.

FEEDER CATTLE at the CME finished up on Monday. The MAY’07 contract closed at $107.50/cwt, up $0.350/cwt but $2.050/cwt lower than last Monday. The AUG’07 contract was again the most active closing at $109.750/cwt, up $0.475/cwt but $3.100/cwt lower than a week ago. Higher feeder prices were supported by the downturn in CBOT corn futures along with fund buying and strong cash feeder markets. Producers are buying more feeders to put on improved pastures in the Southwest. Feeders were also firmer in the Oklahoma City feeder auction. The CME Feeder Cattle Index for May 3 was down $0.01/cwt at $107.07/cwt. Cash sellers should be a little slow to sell feeders if you have the pasture. It looks like it will pay off with a premium for heavier feeders in the coming weeks. If you feed any corn, it also might be a good idea for you to price more corn now.

LEAN HOGS on the CME closed up again this Monday. MAY’07LH futures closed at $75.375/cwt, up $0.125/cwt but $0.225/cwt lower than last Monday’s close. The JUNE’07LH contract was placed at $74.875/cwt, up $0.050/cwt while the JULY’07 contract finished at $74.850/cwt, up $0.250/cwt. Both the June and the July were lower than last Monday’s closing prices. July/June spreading limited June futures gains. Again, the Goldman roll is the culprit. Higher cash hog prices on Monday were supportive of futures keeping packer margins in the negative and careful about purchases. USDA on Friday put the pork carcass cutout at $75.34/cwt, up $0.20/cwt. The CME Lean Hog Index was placed at $73.53/cwt, up $0.59/cwt. The average pork plant margin for Monday was a negative $3.55/head, worse than Friday by $2.70/head but better than one week ago by $2.10/head, according to HedgersEdge.com. Cash sellers should try to keep hog sales current pushing them off feed as soon as they are ready. Hog feeders should think about pricing more grain inputs at this time.

CORN finished lower on the Chicago Board of Trade (CBOT) Monday. The MAY’07 contract finished at $3.694/bu, off 11.6¢/bu but almost regained everything it lost week before last. The DEC’07 contract finished at $3.832/bu, off 7.2¢/bu from last Friday but higher than last Monday’s close by 18.8¢/bu. DEC’08 futures finished at $3.940/bu, off 3.6¢/bu but 14.4¢/bu higher than last Monday. Last week some analysts thought there may be some opportunities to price more $4/bu corn but if this weather holds up I think that time is past. The market did a good job of expecting USDA to place corn planting progress at 55% on Monday. In its 4:00 pm, EST report, USDA put corn planting progress at 53%. This number still lags behind last year’s by 14% and is 10% lower than the 5-year average. U.S. producers are trying to meet the ethanol market demand for corn with intentions to plant corn acres not seen since 1944. The U.S. corn crop needs to be planted by about mid May to get maximum yields. Exports were somewhat slow over the weekend with USDA saying that 33.645 million bu were inspected for export. This was below what was expected. Funds sold 6,000 contracts by noon amid scattered deliveries on the May contract. For the week ended May 3, the CFTC Commitment of Traders report showed large speculators expanding net long positions in CBOT corn by 16,535 contracts to 268,645 lots while large speculators in short positions increased net positions by 2,922 contracts to 76,684 lots. Long funds were placed at 361,635 lots, up 2,126 contracts while short funds shed 1,832 lots finishing with 11,366 contracts. Cash corn in the Midwest was mostly steady amid sluggish producer sales. Corn basis in the Mid-Atlantic States weakened. Technical support n the MAY’07 contract is at $3.54/bu with the 10-day Relative Strength Index (RSI) at 53.38. An RSI over 70 indicates an oversold market while an RSI under 30 shows a market to be oversold … in most normal supply/demand times. Cash sellers should have considered pricing up to 40%-50% of next year’s production on previous advice. You might consider pricing another 5% or so on any market rally while leaving 30%-45% of the crop to speculate on future ethanol demand. Buying a put option may not be a bad consideration at this time.

SOYBEAN futures on the Chicago Board of Trade (CBOT) fell on Monday with the MAY’07 contract closing at $7.290/bu off 4.4¢/bu and 14.4¢/bu lower than last Monday. NOV’07 futures closed off 4.0¢/bu at $7.722/bu from last Friday but nearly even with last Monday’s close. Soybeans followed the corn and crude oil markets lower in sympathy but found support in good corn-planting weather. Export inspections were placed at 11.032 million bu, amid estimates for between 10-15 million bu. Scattered delivery stopping was noted in the Midwest but went mostly unnoticed in the Mid-Atlantic States were cash beans were firm to steady. NOV”07 soybeans have support near $7.441/bu. CFTC’s Commitment of Traders report from Friday had large speculators widening net long positions by 16,700 lots to 49,290 contracts. If you have not priced up to 60% of the 2007 crop by now you might want to think about holding off in order to see where this market may go. A Put option may be worth a consideration if corn acres don’t get planted like they seem to want to.

WHEAT futures in Chicago (CBOT) closed mostly lower on Monday. The MAY’07 contract closed unchanged at $4.820/bu, but off 3.4¢/bu from last week at this time. JULY’07 wheat futures again was the most active contract but finished only 0.6¢/bu off at $4.940/bu and only 1.4¢/bu lower than last Monday’s close. Trading was both choppy and range bound as prices were supported by storms over the weekend in the U.S. Plains production areas. Some flooding was noted in wheat in Kansas. The weather market is driving worries over fungal problems showing up later on. USDA wheat inspected for export at 167.670 million bu was within trade expectations. Deliveries were made on the May contract amid occasional stopping. Friday’s CFTC Commitment of Traders report showed large speculators in net short positions nearly unchanged at 6,701 contracts. Supported by speculative buying, hard red winter wheat in Kansas City (KCBT) ended higher. KCBT volume was placed at 5,479 lots. One floor trading source told me that wheat traders seem to be waiting on the May 11, USDA crop report. USDA on Monday afternoon placed the crop condition at 47% good to excellent, up 1% from last week and 12% better than last year at this time. Producers who have priced between 60%-80% of the ‘07 crop are in good shape. However, if you haven’t priced your wheat, there may not be many more opportunities to price wheat at these pre-harvest levels so a put option may be a wise consideration.

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