8 August 2007

6 minute read

North America

LIVE CATTLE on the Chicago Mercantile Exchange (CME) took a nose dive on Monday amid profit taking, rising wheat, and mostly falling grain prices. The AUG’07LC contract closed at $93.375/cwt, off $0.225/cwt and $0.90/cwt lower than last Monday. The OCT’07LC contract settled at $97.700/cwt, down $0.275/cwt and down $1.275 from one week ago today. Trading was light-to-moderate on Monday amid supportive corn prices with the August and the October contracts trading both sides of unchanged. Futures prices were supported by higher cash cattle. Cash beef prices continued to move higher ending $1-$1.30/cwt higher this week. USDA’s 5-area weekly weighted cattle price showed steers selling for $91.97/cwt vs. $90.63/cwt last week and $80.52/cwt last year at this time. Heifers traded $92.04/cwt vs. $90.80/cwt vs. $80.60/cwt for the same period. The hoof-and-mouth disease outbreak in Britain did not have much effect on the market. While the outbreak caused bans in Europe, it is considered unlikely that Europe will buy more U.S. beef to make up for the difference as Europe does not buy much U.S. beef now due to concerns about U.S. beef production methods. Uruguay and Argentina are the likely winners in this deal. Japan continues to think about easing import restrictions on U.S. beef. It currently will only accept U.S. beef less than 20 months of age. The Japanese Agriculture Ministry stated on Monday they are studying U.S. beef safety data as they consider increasing the age limit to 30 months. USDA estimated Monday’s slaughter at 124,000 head compared to 125,000 head last week and 123,000 head one year ago. USDA on Monday put the choice boxed beef cutout at $145.18/cwt, up $0.57/cwt from Friday. Cash sellers should continue to sell market-ready cattle aggressively. It might be a good idea to price some immediate grain needs.

FEEDER CATTLE contracts at the CME were up on Monday with the exception of one deferred contract. The AUG’07FC contract closed at $116.250/cwt, up $0.325/cwt but $0.725/cwt lower than last Monday. SEPT’07FC futures finished at $116.525/cwt, up $0.020/cwt but $1.275/cwt lower than a week ago. Lower corn prices helped feeders at times allowing them to hold onto modest gains and talk that the next CME Feeder Cattle Index will be higher amid expectations for tight feeder supplies going into next year. The latest CME Feeder Cattle Index for Aug. 1 was off $0.11/cwt at $114.31/cwt. October/September spreading was registered as traders expected similar spreading on Tuesday by the large funds. According to three different floor sources, index funds are expected to start aggressively using spreads to move September longs to October. It is still a good idea for feeder sellers to market livestock aggressively at this time while pricing short-term grain needs. If you have pasture, use it well.

CORN on the Chicago Board of Trade (CBOT) closed mixed on Monday. The SEPT’07 contract finished at $3.256/bu, off 0.6¢/bu from last close. The DEC’07 contract, still the most active, finished at $3.430/bu, even with last Friday’s close. Sell-stops kicked in for the DEC’07 contract after it dipped under the 10-day moving average. However, spillover-strength from wheat helped corn rally late in the day. Much needed moisture in this kernel-making-phase fell on the U.S. Corn Belt. This will help stabilize the crop that has been suffering of late. USDA’s crop-condition report was posted late this afternoon showing what the market had factored in, a crop rating of good-to-excellent of 56%, down 2 points from last week. Some floor sources stated they expected a much lower rating before the weekend rains. Corn inspected for export was reported at 24.517 million bu according to USDA. This was below range estimates of between 34-38 million bu. CFTC’s Commodity of Traders report showed large speculators growing net long positions in CBOT corn to 94,251, about 5,000 bu. Cash corn in the U.S. Midwest was mixed to steady on Monday amid quiet sales. Cash corn in the U.S. Mid-Atlantic States was steady to stronger ranging 2¢/bu– 4¢/bu higher amid slow farmer sales. Cash sellers having priced up to 50%-60% of next year’s production are in a good mood, if their crop is making. This is a pure weather market now. Adequate rain will depress prices; dry weather will provide more strength. Whatever the weather … prices look to be somewhat volatile.

SOYBEAN futures on the Chicago Board of Trade (CBOT) ended lower across the board on Monday. The AUG’07 contract closed at $8.260/bu, off 13.0 ¢/bu. NOV’07 futures were again the most active, closing down 11.0¢/bu from Friday at $8.500/bu but 2.4¢/bu higher than last Monday’s close. Rally in wheat buoyed soybeans. As with corn, good rains played a vital role in the outlook for the crop and market trading today. Soybeans were much in need of rain to stop the crop condition skid. August is a critical yield-making-month for soybeans. USDA rated the crop 56% good-to-excellent, down 2 points from last week’s 58%. The market expected a 1-3 point decline. USDA also reported that 10.5 million bushels of soybeans were inspected for export vs. expectations of between 5-10 million bu. Cash soybeans in the U.S. Midwest were steady due to slow farmer sales. In the U.S. Mid-Atlantic State, soybeans were moving slower amid good opening bids for local supplies. Monday’s opening bids were 7¢/bu– 10¢/bu higher with many places offering 8.11¢/bu -8.31¢/bu for new crop soybeans. CFTC’s Commitment of Traders report showed large speculators cutting net long positions in CBOT beans for the week ended July 31. It might be a good idea to price up to 70% of the ’07 crop at this time.

WHEAT futures in Chicago (CBOT) rose over 2% to eleven-year highs on Monday. SEPT’07 wheat futures closed at $6.664/bu, 14.0¢/bu higher than last Friday and 29.0¢/bu higher than last week at this time. The JULY’08 contract finished at $5.586/bu, up 7.2¢/bu but 25.8¢/bu lower than a week ago. Global stocks are lower while the September contract defies fundamentals to go even higher. September’s nine-day Relative Strength Index (RSI) registered at 13.03 at the close. A contract is considered oversold at 30 or below and overbought at 70 or above. Moves to 30 or below usual suggest the pool of sellers is being exhausted. As with other chart signals, it should be noted that RIS indicators become somewhat of a self-fulfilling prophecy. If enough traders are monitoring the signals, they are reluctant to step up and sell an already oversold market. However, on the other hand, if the fundamental supply and demand situation changes significantly (like we’ve seen with the corn-for-ethanol demand) and continues to change, the market will defy the RSI signal. Current supply/demand fundamentals in place at this time show already short global stocks dwindling amid a growing world population and prospects for further shortages of wheat on the horizon due to natural disasters worldwide. One analyst stated, “This has all the hallmarks of “panic buying.” That remains to be seen as the market speculates. U.S. wheat inspected for export was posted at 25.1 million bu vs. expectations for 16-20 million bu, according to the USDA. Exports showed good potential as Morocco tendered an offer for nearly 1 million tonnes (3.7 million bu) of soft wheat and Egypt stated it wanted to buy 55,000-60,000 tonnes (2-2.2 million bu) of wheat for an early September ’07 delivery. USDA placed the U.S. winter wheat harvest at 94% complete, ahead of the 5-year average of 91% this time last year. U.S. spring wheat is 29% harvested, ahead of its 5-year average of 21%, according to USDA. Funds bought 3,500 contracts while volume on the CBOT was placed at 107,381 futures and 14,454 options. The CFTC’s Commitment of Traders report showed large speculators expanding bullish positions in CBOT wheat for the week ended July 31, 2007. Cash bids for wheat in the U.S. Mid-Atlantic States were very firm ranging 8¢/bu–11¢/bu higher. Producers should consider not having any wheat in storage at this time and pricing up to 25% of the ’08 crop.