22 August 2007

8 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed higher in light trading on Monday. The AUG’07LC contract closed at $91.950/cwt, even with last Friday’s close and $1.200/cwt higher than last Monday. The OCT’07LC contract settled at $95.650/cwt, up $0.175/cwt and $0.60/cwt better than last week at this time. Last Friday’s USDA cattle reports were somewhat bullish, fueling Friday’s rally and supporting deferred live cattle prices. Floor sources late on Monday said that the market still “feels like” more feeders will be coming on in October even though placements were a surprise. USDA reported July placements at 1.622 million head, off 17% from last year at this time as traders expected about a 13% reduction. Placements were also 3% below 2005 levels, the lowest they’ve been since 1996. Marketings were placed at 2.0 million head for July, 3% above 2006 levels and 4% above 2005 levels. On-feed supplies were placed at 95% of last year versus the expected 96%. Cash cattle prices were firm with the 5-area-weekly-weighted-average price at $90.25/cwt vs. $90.45/cwt last week. It was reported that some feedlots were expecting sales up to $92.00/cwt this week amid tight supplies. Export prospects are expected to brighten with the upcoming South Korean Agriculture Ministry announcement regarding U.S. beef imports. USDA on Monday lowered the choice boxed beef cutout by $0.12/cwt to $143.67/cwt. According to HedgersEdge.com, the average beef packer margin for Monday, August 20, was a negative $3.50/head, $2.65/head better than last Friday and $11.65/head better than last Monday. Cash sellers are looking at good prospects for prices over the next six months. It might be wise to hold off pricing near-term corn inputs at this time while waiting to make a pricing move over the next 3 to 4 weeks as corn harvest approaches.

FEEDER CATTLE contracts at the CME were up somewhat across all contracts on Monday. The AUG’07FC contract closed at $116.450/cwt, up $0.025/cwt and $0.925/cwt higher than last Monday. SEPT’07FC futures finished at $117.375/cwt, up $0.500/cwt and $2.025/cwt higher than a week ago. Expectations for increased October placements weighed on the market. Good prospects for better live cattle prices in the deferred months and tighter feeder cattle supplies supported feeders all day, according to more than one floor source. This spillover from live cattle and a supportive USDA cattle report brightened the outlook for feeders into next year. Oklahoma cash feeders were reported up to $1.00/cwt higher on Monday. The latest CME Feeder Cattle Index for August 16 was down $0.42/cwt at $116.39/cwt. It is still a good idea for feeder sellers to continue to aggressively market livestock. Hold off pricing corn supplies for now. Prices should get better over the next 3-4 weeks as harvest gets going.

LEAN HOGS on the CME closed down on Monday with July-October ’08 futures holding their own. The OCT’07LH contract closed at $67.10/cwt, off $0.175/cwt and $4.30/cwt lower than a week ago. This contract has lost $7.950/cwt (11.1%) in two weeks. DEC’07LH futures were also off, closing at $66.375/cwt, down $0.275/cwt. Spreading in the December/February and April/February applied market pressure. Outlook for increase pork production and decreased exports proved heavy on prices. China suspended pork imports from 8 U.S. plants last week due to suspicions that the meat contained the growth promotant, ractopoamine, sold under the Paylean name in the U.S. China had already barred some pork imports from the U.S. last week before making the announcement. The market is trying to gauge whether or not more trade barriers will come up in this regard. China warned an additional 15 plants that a second violation would lead to import suspensions of their products as well. Cash hog prices ran weak, reigning in futures. Cash hogs are expected to open up to $0.50/cwt lower on Tuesday even as pork plants increase kill rates in response to better profits. Plants seem to have access to ample supplies. USDA reported the pork carcass cutout at $72.28/cwt, off $0.79/cwt. The average pork packer cutout margin for Monday was placed at a positive $6.70/head, $0.65/head lower than Friday but $10.85/head better than last week at this time, according to HedgersEdge.com. The latest CME Lean Hog Index was off $0.95/cwt at $72.17/cwt. Cash sellers that have the supplies should push hog sales as soon as they are finished as packers seek to fill kill lines. Near-term corn inputs should not be priced yet as corn prices are expected to ease as we go toward harvest.

CORN on the Chicago Board of Trade (CBOT) closed up on Monday. The SEPT’07 contract finished at $3.316/bu, up 3.2¢/bu from Friday, regaining 10.2¢/bu lost last Thursday and correcting to almost even with last Monday. The DEC’07 contract finished at $3.486/bu, up 3.0¢/bu from Friday, almost the identical story of the September contract; nearly even with last Monday while gaining 10.0¢/bu back from last Thursday’s skid. Light technical trading was the rule of the day. No one was interested in selling amid weather-neutral news. Virginia did experience some lodging-weather of late but other states south and north of here are in a continuing pattern. Export demand was good and proved bullish for corn on the day, according to several floor sources. A Taiwanese entity is expected to tender an offer for between 23,000-29,000 tonnes (900,000 bu – 1.14 million bu) of corn on Wednesday. USDA reported corninspected for export at 38.6 million bu, within estimates for 34-39 million bu. Late Monday afternoon USDA raised the corn crop good-to-excellent rating 2 points to 58% with 6% of the U.S. corn crop mature. This is near the 5 year average of 5% mature at this time. Several trading-floor sources said the market expected the crop rating to remain the same as last week. Funds were buying, going after over 1,000 lots. The CFTC Commitment of Traders report showed large speculators expanding bullish positions in corn at 110,000 contracts, up 7,400 lots as of August 14. Cash sellers having priced up to 50%-60% of this year’s production are okay. If your crop is on track with contract commitments it might be a good idea to price more at this time. Be careful not to overprice this year’s production. It would be a very good time to have up to 50% of the 2008 crop priced now as the DEC’08 corn contract closed at $3.926/bu, up 2.0¢/bu from Friday but lower than last Monday by 6.4¢/bu. I do expect downward pressure on price to increase and basis to worsen as this record harvest approaches with not enough storage to take care of the crop. If interested, you may contact me about grain storage bag research that I am doing.

SOYBEAN futures on the Chicago Board of Trade (CBOT) ended mostly lower on Monday except for the SEPT’07 and the MAR’08 gaining slightly on technical trading. The SEPT’07 contract closed at $8.116/bu, up 0.2¢/bu. NOV’07 futures closed at $8.272/bu, down 0.4¢/bu and 54.4¢/bu lower than last Monday. Trading was considered range-bound as the market noted nice rains and expected prospects for more in this critical pod-filling stage of the crop. Timely rains were noted in many soybean growing areas causing the November contract to fall over 9.0¢/bu on expectations of higher yield potential. Late on Monday USDA placed the U.S. soybean crop good-to-excellent rating 2 points lower than last week at 54%. Several sources stated the market was trading a better rating that actually came out. USDA placed soybeans inspected for export at 9.1 million bu, near the top of the expected range of between 4-10 million bu. There was some fund selling. Improved interest rates by the Fed were supportive. The CFTC Commitment of Traders report last Friday had large speculators increasing bullish positions in soybeans to 91,500 contracts, about 5,200 more lots for the week ended August 14. It looks like a nice head-andshoulders formation in the November contract is forming. The NOV’07 chart featured this week shows the measuring objective that could be reached prior to harvest if good pod-filling weather continues. However, good support is provided by; dry weather in other soybean growing countries, strong possibilities for U.S. soybean exports, and news from South America that their soybean crop is not expected to expand more than 5%. The 14-day Relative Strength Index (RSI) in the November contract also provides upside support closing at 42.64. A contract is said to be oversold when the RSI is at or below 30 or overbought at 70 or above. Technically speaking, on Monday primary support for the NOV’07 contract is found at $8.044/bu while resistance to fill the gap from August 16 is placed at $8.407/bu. New crop beans priced up to 70% at this time is probably a good place to be. If you’re positive that you will make more beans than you have priced, it might not be a bad idea to price more. It would not be a good idea to price more than 25% of the 2008 crop.

WHEAT futures in Chicago (CBOT) gained on Monday with the exception of two deferreds. SEPT’07 wheat futures closed at $6.750/bu, up 3.0¢/bu and 9.0¢/bu higher than one week ago today. The JULY’08 contract finished at $5.724/bu, off 0.4¢/bu and 7.6¢/bu lower than last Monday. World supply fundamentals for the next two years seem to be holding up amid increased exports. Tight global stocks and production trouble in Europe have decreased that area’s export potential. Germany reduced their 2007 wheat crop by 2.3 million tonnes (84.5 million bu) to 20.1 million tonnes (738.5 million bu) due to wet conditions. Egypt made notice of a tender for 55,000-60,000 tonnes (2-2.2 million bu) for October ’07 shipment. India is expected to tender an offer later this week but has not disclosed offer details as of late Monday. However, Indian restrictions on importation of U.S. wheat are still in place. On the other hand, countries that are expected to sell wheat to India are expected to turn around and buy U.S. wheat as any tender made will shorten already tight global stocks. Weather conditions were also supportive on Monday. Rain is delaying an already-late harvest creating concerns for quality. The CFTC Commitment of Traders report for the week ended August 14 showed large speculators increasing bullish positions to about 12,000 contracts, up about 4,800 lots. Cash wheat in the Mid-Atlantic States was stronger on Monday amid slow farmer selling. Opening bids ranged from 3¢/bu-5¢/bu higher in many places. Producers should consider pricing up to 25% of the ’08 crop and need to consider pricing up to 10% of the ’09 crop at this time.

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