18 July 2007

7 minute read

North America

LIVE CATTLE on the Chicago Mercantile Exchange (CME) finished lower on Monday with one exception, the OCT’07LC contract. The AUG’07LC contract closed at $91.35/cwt, off $27.50/cwt from the last close but $2.10/cwt higher than two Mondays ago. The August was the most active. The lone gainer on the day was the OCT’07 contract, closing up $0.05/cwt at $96.35/cwt. Limit down corn and losses in soybeans and wheat spurred higher market movement. A large portion of the volume came as funds rolled long positions in live cattle. October/August spreading was noted. Most index fund rolling was considered finished last week but funds kept on moving positions. Cash beef prices showed some weakness this week. The Five-Area-Weekly-Weighted Price for cattle was only up $0.50/cwt-$1.00/cwt. USDA placed the choice beef cutout at $143.04/cwt, up $0.12/cwt. Heavy weights and red packer margins most likely kept bidders out. According to HedgersEdge.com, the average beef packer cutout for Monday was placed at a negative $13.20/head, $5.20/head lower than last Friday and $10.40/head lower than this time last week. The markets may get a little jumpy ahead of the monthly Cattle on Feed and semi-annual Cattle Inventory reports due out on Friday by 3:00 p.m., EST. Cattle on Feed are expected to be around 100% of last year while the Cattle Inventory report is expected to show less than 100% of last year. Cash sellers are encouraged to push cattle out the door at the right weights. As with two weeks ago, it might be a good idea to buy more near-term grain inputs and hedge expected feeder purchases.

FEEDER CATTLE contracts at the CME rose nicely on Monday amid limit down corn prices and fair support from live-cattle while the premium to cash slowed upside movement. The AUG’07FC contract closed at $115.150/cwt, up $1.300/cwt and a whopping $6.60/cwt higher than two weeks ago! SEPT’07FC futures finished at $115.775/cwt, up $1.100/cwt and another whopping $6.775/cwt higher than the figure posted two weeks back! Tight feeder cattle numbers are expected this Friday when USDA publishes its livestock reports. The latest CME Feeder Cattle Index was placed at $111.61/cwt, down $0.19/cwt. It might be a good idea for feeder buyers to lock in some feeder prices at this time. I know that many across Texas, Alabama, Georgia, and Florida are hurting for rain but if you can pasture more pounds on at this time it still seems to be a good idea to do so. It is also wise to consider locking in more near-term grain supplies.

LEAN HOGS on the CME closed lower on Monday following China’s announcement it will block some future U.S. pork and poultry imports. The JULY’07LH contract expired at noon at and was the only contract to finish higher, doing so at $69.20/cwt, up $0.175/cwt. However, this was still $4.900/cwt lower than two weeks ago, Monday. AUG’07LH futures were again the most actively traded closing at $72.975/cwt, up $0.650/cwt. Sharply lower CBOT corn helped the July finish with a flurry. A record 72,824 contract volume was set last Friday. After talk of possible large pork sales to China sent hog futures soaring last Thursday, China quarantined pork and poultry from some U.S. plants after the discovery of salmonella-tainted chicken and other products with growth agents or additives. This weighed on the market even though some floor sources said they felt this was a ploy by China to relieve pressure over the safety of its own food products. It is estimated that China will need to increase imported pork and poultry products to make up for losses from disease in its own hog herds. Also weighing on hog prices in the back months were fears that lower feed costs would increase production. Steady to higher cash hog prices lent support at times. Firm demand by packers is noted as the average pork cutout for Monday was a positive $6.65/head, off $1.77/head from Friday but $7.00/head higher than last Monday, according to HedgersEdge.com. USDA increased the pork carcass cutout by $0.47/cwt to $73.46/cwt last Thursday. The latest CME Lean Hog Index was $70.10/lb, down $0.72/lb. Cash sellers should continue to keep hog sales as current as possible. Hog feeders should again think about pricing near-term grain inputs at this time.

CORN on the Chicago Board of Trade (CBOT) closed limit down in several contracts on Monday. The SEPT’07 contract finished at $3.346/bu, off 20.0¢/bu from last close. The DEC’07 contract, noted as the most active, finished at $3.484/bu, also down 20.0¢/bu from Friday and 25.6¢/bu lower than two weeks ago. The DEC’08 contract finished at $3.914/bu, down 20.0¢/bu from Friday but only 0.6¢/bu lower than two weeks ago. USDA put the crop condition at 64% good to excellent, down 4%. Playing a bearish role in the market, weather forecasts are favorable for silking during this key crop-making phase. This is what the market expected. USDA reported that 101,000 tonnes (4 million bu) of new crop corn was sold on Monday. Funds sold between 7,000 and 8,000 lots while the market left 35,000-40,000 sell orders unfilled at closing. The CFTC Commitment of Traders report showed large speculators growing bullish positions in CBOT corn by 6,600 contracts to 119,000 lots during the week ended July 10. Cash corn bids in the Mid-Atlantic States were 3¢/bu-4¢/bu higher on Monday. Cash sellers that have priced up to 50%-60% of next year’s production are in good shape. Pricing with Put Options as we near harvest may not be a bad idea.

SOYBEAN futures on the Chicago Board of Trade (CBOT) ended lower with several contracts limit down on Monday. The AUG’07 contract closed at $8.716/bu, down 50.0¢/bu. NOV’07 futures was the most active, closing limit down 50.0¢/bu from Friday at $8.986/bu but 60.2¢/bu higher than two weeks ago. As with corn, moderate temperatures and rainfall this week in the U.S. Midwest pressured prices hard. Some profit taking was noted. As expected, the good-to-excellent crop rating was lowered by 3% to 62%. Soybean crush activity supported prices as the Processor’s Association reported its members crushing 141.6 million bu of soybeans in June. This was above the expected 136.8 million bu. Cash beans in the U.S. Midwest were weak on Monday while those in the U.S. Mid-Atlantic States were strong, noting 7.0¢/bu higher in some places. Funds sold 12-15 thousand lots with over 17,000 going unsold at the end of the day. Friday’s CFTC Commitment of Traders report shows funds expanding bullish positions in soybeans to 119,000 contracts, up 13,200 lots. Producers with up to 60% of the 2007 crop are still in good shape. Another 10% may be priced at this time.

WHEAT futures in Chicago (CBOT) were lower on Monday. SEPT’07 wheat futures finished down 19.0¢/bu at $6.016/bu but 12.2¢/bu higher than two weeks ago. The JULY’08 contract finished at $5.620/bu, off 14.0¢/bu. Wheat was taken lower by corn and soybeans in what was a very volatile market. Weather reports also favored good harvest progress for the U.S. hard-red-winter wheat crop. Facing a shortfall in its own domestic wheat supply, India is said to have stated it will import more wheat this year despite high prices. Its first priority is getting enough grain to feed a population of over 1 billion people. U.S. wheat exports to Taiwan could be challenged after millers there asked the government to set acceptable amounts of pesticide residue. A cargo ship of U.S. wheat was ordered to undergo testing. Egypt was reportedly seeking 55,000 tonnes (2 million bu) to 65,000 tonnes (2.4 million bu) of wheat from global sources. In hopes of stimulating domestic production of wheat, the Farm Minister for Europe stated he intended to end the EU’s rule that farmers leave 10% of their land fallow to recover between crops. Funds sold over 3,000 lots. The CFTC’s Commitment of Traders report shows large speculators n CBOT wheat expanding bull positions by 1,100 lots to just over 6,000 contracts for the week ended July 10, 2007. Opening cash wheat bids for Mid-Atlantic States producers were 1.0¢/bu-3.0¢/bu lower on Monday. Producers should consider pricing up to 70% of the ’07 crop.

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