1 August 2007

6 minute read

North America

LIVE CATTLE on the Chicago Mercantile Exchange (CME) finished higher on Monday. The AUG’07LC contract closed at $94.275/cwt, up $0.65/cwt. This is $2.30/cwt higher than a week ago. The OCT’07LC contract approached its contract high set March 8 settling at $98.975/cwt, up $0.325/cwt. Gains were limited due to overbought conditions with an RSI of 74 early on. December ’07 and February ’08 set fresh contract highs. Live cattle were supported by steady technical signs, continued strong fundamentals, higher cash cattle prices, and carry-over demand from Friday’s nice gains. Expectations for tighter cattle supplies later in the year on reduced feedlot placements are driving better supply fundamentals for producers. Cash cattle trading up $1/cwt-$1.50/cwt higher were supportive. Boxed beef sales also showed an upward trend with active sales late last week prompting ideas that packers were willing to pay higher prices for inputs. USDA put the choice boxed beef cutout at $141.23/cwt, up $0.48/cwt on Monday. According to HedgersEdge.com, the average beef packer margin for Monday was a negative $13.75/head, $1.55/head better than last Friday and $17.50/head better than last week at this time. Cash sellers should be selling market-ready cattle aggressively. It might not be a bad idea to hold off pricing immediate grain needs.

FEEDER CATTLE contracts at the CME were up on Monday. Prices slipped from fresh trading highs as corn prices finished strong. The AUG’07FC contract closed at $116.975/cwt, off $0.150/cwt but $0.325/cwt higher than a week ago. SEPT’07FC futures finished at $117.800/cwt, up $0.025/cwt and $0.225/cwt higher than last Monday. As with live cattle, firm fundamental supply numbers and strong technicals supported feeder futures. However, feeders eased up in light trading near noon and never made it back. Bulls liquidating long positions in an overbought market with an RSI over 70 and rolling August futures weighed on prices. The latest CME Feeder Cattle Index for July 26 was $113.830/cwt, up $0.14/cwt and the highest it’s been since October 6, 2006. It might be a good idea for feeder sellers to market livestock aggressively at this time. It wouldn’t be a bad idea to consider holding off grain pricing either.

CORN on the Chicago Board of Trade (CBOT) closed up again on Monday. The DEC’07 corn contract broke overhead resistance today, July 23, set up by that descending wedge pattern established over the last six weeks beginning June 18. The SEPT’07 contract finished at $3.234/bu, up 2.4¢/bu from last close and 13.4¢/bu higher than last week. The DEC’07 contract, still the most active, finished at $3.400/bu, up 3.4¢/bu from Friday and 14.6¢/bu higher than last Monday. The DEC’08 contract finished at $3.902/bu, up 3.6¢/bu from Friday but only 0.09¢/bu higher than one week ago. Gains in soybeans, soybean oil, and other energy products supported corn amid forecasts for hotter, drier weather in the corn-belt. This is considered a very important time in kernel formation and hence, yields. Seen as limiting gains in corn were reports of good corn-growing weather in Europe and a decrease in the corn market there. Exports over the weekend were quiet. USDA reported 36.7 million bu of U.S. corn inspected for export amid expectations for between 32-34 million bu. Cash corn prices were getting weaker in the U.S. Midwest due to the approaching harvest of what seems so far to be the promise of a very good crop. Cash corn in the U.S. Mid-Atlantic States was steady to firm reporting opening bids for Virginia corn up to 4.0¢/bu higher than Friday’s close. The CFTC’s Commitment of Traders report from last Friday for futures and options combined showed as of last Tuesday, large speculators in bullish positions were off 6,508 lots at 248,439 contracts. Bearish large speculators registered at 112, 969 contracts, off 7,275 lots. Bullish and bearish funds were up with the bulls up 2,433 lots at 378,112 contracts and the bears up 867 lots at 11,448 contracts. Cash sellers having priced up to 50%-60% of next year’s production are in a good mood. This DEC’07 contract is showing the life I talked about last week.

SOYBEAN futures on the Chicago Board of Trade (CBOT) ended somewhat higher on Monday. The AUG’07 contract closed at $8.226/bu, up 7.2¢/bu and 6.4¢/bu higher than one week ago today. NOV’07 futures, also the most active, closed up 7.2¢/bu from Friday at $8.476/bu and 6.6¢/bu higher than last Monday’s close. Trading was generally subdued waiting on the weather amid a lack of earth shattering news. Soybeans were held up by good soybean oil prices and forecasts for hot, dry weather in the near term as the crop is now filling pods. Overall gains were limited by prospects for better weather after this dry spell and position evening by traders late in the day. Export inspections were placed at 7.537 million bu for the week ended July 26, below expectations for between 8-9 million bu. USDA met crop-condition expectations lowering the good-to-excellent rating by 3 points to 58%. Cash soybeans in the U.S. Midwest were mostly steady to firm while they were 6.0¢/bu-8.0¢/bu lower in the U.S. Mid-Atlantic States. The CFTC’s Commitment of Traders report showed, as of Friday, large speculators in bullish positions off 13,059 contracts at 137,146 lots while those in bearish positions were up 1,888 contracts at 27,058 lots. Bullish funds were up 903 contracts at 162,998 lots while funds taking bear positions were placed at 8,866 lots, up 1,368 contracts. Producers with up to 60% of the 2007 crop are in good shape. It might be a good idea to price another 10% of the ’07 crop at this time.

WHEAT futures in Chicago (CBOT) slipped on Monday. Profit taking sent SEPT’07 wheat futures 15.6¢/bu lower at $6.374/bu but remained 17.2¢/bu higher than last week at this time. The JULY’08 contract finished at $5.844/bu, off 18.2¢/bu but 16.0¢/bu higher than a week ago. Improving harvest weather and the fact that the world supply is not getting worse was seen as weighing on prices. Technically speaking, all contracts but the nearby SEPT’07 futures were considered overbought. A contract is said to be overbought with a Relative Strength Index (RSI) over 70 and oversold with an RSI under 30. Export news was good over the weekend with Iraq tendering an offer to buy at least 50,000 tonnes (1.84 million bu) and Bangladesh tendering an offer for 112,000 tonnes (4.1 million bu). USDA put U.S. wheat inspected for export last week at 17.2 million bu, above expectations for between 13-14 million bu. The CFTC Commitment of Traders report for last week showed that funds made few changes to net long positions. Opening cash wheat bids for Mid-Atlantic States producers were 2.0¢/bu-3.0¢/bu higher on Monday. Producers should consider staying priced at 70% of the ’07 crop. Pricing with call options would not be out of the question.