3 October 2007

6 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished down on Monday. The OCT’07LC contract settled at $96.225/cwt, off $0.725/cwt and $1.425/cwt lower than last Monday. DEC’07LC futures finished at $98.600/cwt, off $1.20/cwt and $2.175/cwt lower than a week ago. Fund selling and profit taking by locals pressured prices. Lower hog prices did not help. Beef lost support amid ample hog supplies and shrinking sales. Cash cattle expectations are that they have topped around last week’s $96-$96.50/cwt. Large meat supplies and negative beef plant margins are pressuring prices. According to HedgersEdge.com, the average beef plant margin for Monday was a negative $39.15/head, $10.65/head worse than Friday but only $4.90/head worse off than last Monday. Early on Monday USDA put the choice boxed beef cutout at $146.59/cwt, up $0.19/cwt. Technical support waned last Monday after breaking resistance at $97.476/cwt amid a symmetrical triangular pattern. This pattern suggested some movement to the upside; however it proved to be a false signal when that high was posted. In October futures prices should trade in an ever narrowing pattern until something triggers movement to the upside … like cheaper corn. That is not the case for December. More meat equals lower prices. Cash sellers should consider cattle that are sell-ready off the feedlot. It might be a good idea to hold off pricing near-term corn inputs if you can. Corn prices are expected to succumb to harvest pressure.

FEEDER CATTLE contracts at the CME closed down on Monday. OCT’07FC futures closed $1.225/cwt lower at $115.075/cwt and $1.175/cwt lower than last week at this time. The NOV’07FC contract finished at $114.950/cwt, down $1.675/cwt. Lower live cattle and hogs put the pressure on feeder cattle futures. Fund-based and technical selling amid light trading added to the skid. There is some merit to the idea that demand for replacement feeders will be limited if demand for fat cattle loses ground because of heavy meat supplies. Cash feeder demand has already seen some slippage in recent weeks. The latest CME Feeder Cattle index for September 27 was posted at $116.04/cwt, up $0.11/cwt but off $0.30/cwt from a week ago. It might be a good idea to price some feeder sales now but hold off on buying corn inputs at this time. Corn prices are bound to get better.

LEAN HOGS on the CME closed down on Monday with the exception of one contract, OCT’08LH futures. It closed at $68.30/cwt, up $0.40/cwt. The OCT’07LH contract closed at $58.150/cwt, down $0.750/cwt and $3.375/cwt lower than last Monday. DEC’07LH futures closed down $2.700/cwt at $59.550/cwt, and $3.775/cwt lower than a week ago. This contract has lost over $7.00/cwt in two weeks now. The market is flush with meat protein as funds noted it and sold off contracts late in the day amid poor export sales. USDA’s Hogs and Pigs report sent selling into high gear with FEB’08LH futures falling the daily limit. The USDA report put the total of all hogs and pigs at 103% of last year, breeding hogs at 101% of last year, market hogs at 103% of a year ago, and the June/August pig crop at 104%. The market expected this … on the high end of things. The market hog number set a record high. Cash hogs and retail prices were lower. USDA placed the pork carcass cutout at $61.01/cwt, down $0.19/cwt. The latest CME Lean Hog index was down $1.03/cwt at $61.66/cwt. The average pork plant margin was off a little at $5.20/head, down $0.80/head from Friday but $3.25/head better than a week ago, according to HedgersEdge.com. Cash sellers should continue to push hog sales this week. Hold off on near-term corn pricing.

CORN on the Chicago Board of Trade (CBOT) ended down on Monday a range of 3¢/bu – 5¢/bu cents amid harvest pressure and the promise of large ending stocks. The DEC’07 contract finished at $3.686/bu, off 4.2¢/bu and 4.8¢/bu lower than last week. MAR’08 futures also finished off 3.6¢/bu at $3.854/bu and 3.6¢/bu lower than a week ago. The report released last Friday was definitely bearish. Late on Monday USDA put the U.S. corn crop at 31% harvested and estimated 1.304 billion bu in storage versus analyst’s guesstimates of 1.146 billion bu. Good weather and good yields are being reported across the Corn Belt. This news served to put a lid on corn prices even though they were supported by a good showing in wheat and consistent good demand. The December chart shows that is it trying to go back and fill the bullish gap established week before last. Cash bids for corn in the U.S. Midwest were steady to firm across most locations as producers were reluctant to let go of their corn. Opening bids for cash corn in the U.S. Mid-Atlantic States found weakness in prices ranging from 6¢/bu – 14¢/bu lower on Monday. The CFTC Commitment of Traders report placed large speculators in bull positions at 146,700 contracts, up 28,900 lots for the week ended September 25. Producers having sold 50% or more of this year’s crop and more of the crop on the past two week’s rally are in good condition. It might pay to store or consider buying a put option at this time.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were up slightly on Monday. NOV’07 futures closed at $9.914/bu, up 0.2¢/bu from Friday and 7.2¢/bu higher than this time last week. The JAN’08 contract finished over $10.00/bu at $10.094/bu and 10.0¢/bu higher than last Monday. NOV’08 soybean futures ended at $9.680/bu, up 4.0¢/bu and 26.6¢/bu higher than a week ago. Strength in wheat and dry weather in Brazil’s northern soybean producing region were seen as supportive for CBOT soybeans. Mild weather in the U.S. is seen as pushing the prospects for harvest and thus more soybeans into the supply line. Floors sources said that traders today expected USDA to put the U.S. soybean-cropharvested number between 25% - 30%. USDA put the number at 29% late on Monday. The seasonal average for this time of year is about 24%. Weekly inspections for soybeans were placed at 11.152 million bu, on the low side of trade expectations of between 10 – 15 million bu. For the week ended September 25, the CFTC Commitment of Traders report showed funds buying 1,000 lots and large speculators increasing bullish positions by just over 8,000 contracts to 113,800 lots. Last week it was suggested to consider pricing any of the remaining crop at this time while realizing some upside potential still existed in the soybean market. The market has delivered so it might be a good idea to price what’s left. Pricing up to 25% of the 2008 crop at this time is still considered a very good idea.

WHEAT futures in Chicago (CBOT) finished strong on Monday. DEC’07 wheat futures settled 13.4¢/bu higher at $9.524/bu and a whopping 74.8¢/bu higher than last Monday. The JULY’08 contract posted a new high at $6.940/bu, up 13.0¢/bu and 56.6¢/bu higher than a week ago. Wheat led the day amid stubborn worries about a global supply that is still shrinking, weather problems in Australia, expectations for a smaller Canadian wheat crop, and a bullish report from USDA last Friday. USDA put wheat inspected for export at 39.384 million bu, higher than expectations of between 27-37 million bu. Morocco and South Korea tendered offers for 260,000 (9.6 million bu) tonnes of soft wheat and 73,000 (2.7 million bu) tonnes of U.S. wheat respectively. As of September 25, the CFTC Commitment of Traders report showed large speculators getting into a net bull position by 694 contracts after being net short last week by about 3,300 lots. Funds bought 3,000 lots. Cash wheat in the Mid-Atlantic States rallied a range of 6¢/bu -11¢/bu on Monday. Producers should have sold all wheat stocks by now and might consider pricing up to 25% of the ’08 crop.

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