25 July 2007

5 minute read

North America

LIVE CATTLE on the Chicago Mercantile Exchange (CME) finished higher on Monday. The AUG’07LC contract closed at $91.975/cwt, up $1.15/cwt. In last week’s report I said this contract was off $27.50/cwt from the last close. I hope I didn’t give anyone a heart attack for misplacing that decimal point. However, all of your notes about this miscue did make me feel good, again showing me that my report is widely read. Trying again, this contract was $0.625/cwt higher than last week at this time☺ The October contract was the most active closing up $0.575/cwt at $97.175/cwt. Friday’s USDA cattle reports and sinking grain markets were supportive. Total cattle inventory was 99.6% of last year while most notable were cows weighing more than 500 lbs for replacements were placed at 94% of last year. USDA put the July 1 cattle-on-feed numbers at 99.6% of last year with June placements running at 85% of last year versus the previous estimate of 89.2% of last year. June marketings were up 0.8% at 97% of last year. Cash cattle traded $1/cwt lower but traders are expecting steady to possibly higher cash prices this week. The choice boxed beef cutout came in at $142.54/cwt, up $1.20/cwt. According to HedgersEdge.com, the average beef packer cutout margin for Monday was a negative $31.25/head, $3.80/head worse than last Friday and $18.05/head worse than last week at this time. Packer margins will have to get better to spur stronger cash cattle, several floor sources stated. Commercial buying and hedge lifting added to the gain in the August contract while deferred contracts found support from last Friday’s report. Cash sellers can take their time about getting cattle out the door now. It might be a very good idea to buy more near-term grain inputs and hedge expected feeder purchases.

FEEDER CATTLE contracts at the CME were up on Monday amid declining grain prices, strength in live cattle, and the bullish USDA report last Friday. The AUG’07FC contract closed at $116.650/cwt, up $1.150/cwt. SEPT’07FC futures finished at $117.575/cwt, up $0.900/cwt. Fresh highs were set in all but the August contract. USDA reported that tighter feeder cattle supplies were in store for the near future. The latest CME Feeder Cattle Index was up $0.10/cwt at $112.69/cwt. It might be a good idea for feeder buyers to lock in some, but not all, feeder prices at this time. It would also be a very good move to lock in more near-term grain supplies.

CORN on the Chicago Board of Trade (CBOT) closed down on Monday. The SEPT’07 contract finished at $3.100/bu, off 8.2¢/bu from last close and 24.6¢/bu lower than last week. The DEC’07 contract, still the most active, finished at $3.254/bu, also down 8.0¢/bu from Friday and 23.0¢/bu lower than last Monday. The DEC’08 contract finished at $3.814/bu, down 4.4¢/bu from Friday but only 10.0¢/bu lower than two weeks ago. Good growing weather weighed on the market as forecasts for milder weather in the near future were noted. Speculative selling provided momentum for skid row today. The market expected USDA to increase the good-to-excellent corn rating by 1%-2% but were surprised late in the day. USDA lowered the crop rating by 2% from last week to 62%. The December wheat/December corn spread widened to more than $3.00/bu, levels not seen in 30 years. USDA put corn inspected for export last week at 35.7 million bu, well within estimates for between 34-38 million bu. Israel and South Korea were looking for corn, but not necessarily U.S. corn. Cash corn in the U.S. Midwest was steady to firm late in the day as farmers were somewhat slow to turn loose of supplies. Cash corn in the U.S. Mid-Atlantic States was weaker, up to 8.0¢/bu lower. Funds sold over 4,000 contracts. The CFTC Commitment of Traders report for futures and options combined showed lard speculators decreasing bullish positions in corn to 89,100 lots, down 30,000 contracts. Cash sellers having priced up to 50%-60% of next year’s production are still in good shape. It may be a good idea to price up to 25% of the 2008 crop. Pricing the ’07 crop with put options as we near harvest may not be a bad idea either. However, with DEC’07 corn mostly overbought and ethanol demand still cranking up, I still think there is some life left in the December contract.

SOYBEAN futures on the Chicago Board of Trade (CBOT) ended lower on Monday. The AUG’07 contract closed at $8.162/bu, down 34.0¢/bu and 55.4¢/bu lower than last Monday. NOV’07 futures, the most active, closed down 34.2.0¢/bu from Friday at $8.410/bu and 57.6¢/bu lower than last week at this time. Good weather for pod setting was noted, offsetting concerns for lower ending stocks. As with corn, the market expected a better crop-condition report from USDA today. However, the crop condition of good-to-excellent was lowered by 1 point to 61%. Weekly export numbers published by USDA were not what traders expected. USDA reported 3.4 million bu inspected for export last week compared to expectations of between 8-12 million bu. Funds sold about 7,000 lots. The CFTC Commitment of Traders report showed large speculators reducing bullish positions by almost 10,000 contracts to 109,000 lots. Cash soybeans were steady in the U.S. Midwest while weaker by up to 36.0¢/bu in the U.S. Mid-Atlantic States. Producers with up to 60% of the 2007 crop are still in good shape. Put options may be worthwhile to purchase.

WHEAT futures in Chicago (CBOT) were stronger on Monday. SEPT’07 wheat futures finished up 4.0¢/bu at $6.202/bu and 20.1¢/bu higher than last week at this time. The JULY’08 contract finished at $5.684/bu, up 4.6¢/bu. Reports of lower-than-expected yields and rust problems weighed on the market. Wheat bucked the trend corn and soybeans set for the day. Providing market momentum, dry weather was noted stressing the young crop and wet weather has been increasingly bringing plant pathology problems, Australian forecasters lowered that country’s ‘07/’08 crop estimates by 9% to 23.7 million tonnes (870 million bu). Also buoying the market was news that Argentine growers may not be able to plant as much wheat as expected due to the lack of moisture. Meanwhile, hot weather in the U.S. Plains was seen as limiting crop yield and raising concerns about crop progress. USDA placed the wheatinspected-for-export total at 19.3 million bu, well above the expected range of 13-16 million bu. Friday’s CFTC Commitment of Traders report for futures and options combined showed large speculators increasing bullish positions by 2,644 lots to 103,086 contracts. Those in bear positions were up 7,060 lots at 73,801 contracts. Opening cash wheat bids for Mid-Atlantic States producers were 4.0¢/bu-5.0¢/bu higher on Monday. Producers should consider staying priced at 70% of the ’07 crop.