7 November 2007

6 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday. DEC’07LC futures finished up $1.125/cwt at $95.850/cwt and $0.500/cwt higher than last week at this time. The FEB’08LC contract closed at $98.750/cwt, up $1.150/cwt. Prices may be starting to work higher due to upcoming holidays and tighter supplies. Futures were supported early by hedge lifting and short covering. Cash, fat cattle were steady near $93/cwt in the Plains. The 5-area price was placed at $91.77/cwt. Packers were paying up for cattle despite negative cutout margins. According to HedgersEdge.com, the average beef plant margin for Monday was around a negative $80.25/head, $3.30/head worse than Friday and $8.10/head worse than last Monday. Processing rates were lower than expected prompting USDA to revise Saturday’s rate downward. USDA estimated Monday’s slaughter at 122,000 head vs. estimates for between 126,000 – 129,000 head. 130,000 head were processed this time last week and 127,000 head this time last year. Boxed beef rose somewhat. USDA put the choice beef boxed beef cutout at $139.34/cwt, up $1.35/cwt. Cash sellers should try to sell on these rallies while packers are willing to pay.

FEEDER CATTLE contracts at the CME were up on Monday. NOV’07FC futures closed at $109.125/cwt, $0.775/cwt higher than last Friday but $0.125/cwt lower than this time last week. The JAN’08FC contract showed signs of strengthening finishing at $109.075/cwt, up $1.150/cwt and $0.850/cwt higher than a week ago. Feeders followed fat cattle on short covering amid buy stops in some contracts and sliding corn prices. Feeders were somewhat near oversold providing additional strength. The CME Feeder Cattle Index for November 1 came in at $110.15/cwt, down $0.250/cwt. Feeder sellers ought to consider pricing some cattle sales and short term corn inputs this week.

LEAN HOGS on the CME closed down on Monday with the exception of the April’08LH and the May’08LH contracts. DEC’07LH futures closed down $0.400/cwt at $52.025/cwt and $2.450/cwt lower than last week. FEB’08LH futures were down $0.350/cwt at $59.525/cwt and $1.675/cwt lower than last Monday. Cash prices for market hogs set the weak tone amid oversold futures. The April and the May RSIs finished above 30 by the end of the day. Production is exceeding demand. USDA on Friday put the pork carcass cutout value at $57.31/cwt, off $0.060/cwt and near the lowest levels set April 2006. The average pork plant margin for Monday was around $10.75/head, $2.15/head higher than last Friday and $3.90/head higher than last Monday. The latest CME Lean Hog Index was off $0.470/cwt at $54.450/cwt. April/December/February spreading was noted. Fund rolling should increase when the Goldman roll officially begins on Wednesday. The Goldman-Sachs roll occurs when the index fund’s long positions are rolled forward from the fifth to the ninth business day influencing many of the other index funds to do the same thing. Cash sellers should sell market-ready hogs only. Some corn inputs should be priced for the near term.

CORN on the Chicago Board of Trade (CBOT) closed down on Monday. The DEC’07 contract finished at $3.752/bu, off 1.6¢/bu. MAR’08 futures finished down 2.0¢/bu at $3.940/bu. The DEC’08 contract finished at $4.252/bu, 0.2¢/bu lower than last close. Volume was moderate at 170,832 futures and 40,179 options with large bullish speculators up 7,962 to 323,724 lots. One ethanol firm participated in 7,000 contracts, actively hedging against higher corn prices by buying $3.70/bu December calls, selling $4.10 January 08 calls, and selling $3.60 January 08 puts. Influenced by steady farmer selling in good weather on a very good harvest and outside markets (crude, gold, and the U.S. dollar), corn ended with a whimper despite good prices in wheat and soybeans. This year the U.S. corn crop will certainly set a record. Late Monday USDA said the U.S. corn crop harvest was 86% complete, compared with a 5-year average of 80%. USDA said 56.7 mi bu of corn was inspected for export vs. expectations for between 35-40 mi bu. USDA said that 210,000 tonnes (8.3 mi bu) of U.S. corn were sold to Egypt and South Korea. USDA will release its World Agriculture Supply Demand Estimates on Friday, November 9th. This will be the last one prior to January, ’08. Some analysts are estimating the numbers to be slightly below October estimates. Friday’s CFTC Commitment of Traders report showed large speculators in bullish positions up 6,683 contracts at 212,517 lots. Bearish large speculators were down 11,283 lots at 86,929 contracts. The DEC’07 corn contract has filled the island top established on 10/2 very nicely. December ’08 futures are showing strength. It might not be a good time to price more ’07 corn. However, ’08 corn prices look attractive.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were riding high on Monday with all contracts up to NOV’08 futures. NOV’07 futures closed at $10.056/bu, up 4.0¢/bu from Friday but 5.4¢/bu lower than a week ago. The JAN’08 contract finished at $10.210/bu up 4.2¢/bu. NOV’08 soybean futures ended at $9.662/bu, down 2.2¢/bu and 12.0¢/bu lower than last week at this time. Soybeans paid no attention to the crude oil market direction for the first time in a while amid followthrough technical buying. Volume was fairly light while open interest fell about 9,000 lots in short covering. Funds bought 3,000 contracts. Fundamentals were bearish amid lower export numbers and good South American crop weather. USDA put the U.S. soybean crop at 92% harvested compared to the 5-year average of 90% but ahead of trader estimates of 88%. Basis was steady amid slow farmer selling. USDA reported 2.105 mi bu inspected for export last week vs. trade estimates for between 20-25 mi bu. China imported 8.5 mi tonnes (7.7 mi bu). CFTC Commitment of Traders report data has large speculators cutting bullish positions. Funds decreased bullish positions by 1,600 contracts to 116,000 lots. The ’07 crop should be sold. Consider pricing up to 25% of the 2008 crop.

WHEAT futures in Chicago (CBOT) closed up on Monday. DEC’07 wheat futures closed 6.4¢/bu higher at $7.850/bu but 43.4¢/bu lower than last Monday. The JULY’08 contract closed at $6.704/bu, up 0.4¢/bu but 20.8¢/bu lower than a week ago amid expectations for more export offers from Pakistan and Turkey, India, and Iraq. The December ’07 contract is way oversold with the Relative Strength Index (RSI) at 8.62 while the July ’08 contract RSI is overbought at 83.99. A contract is said to be overbought with an RSI at or above 70 and oversold at an RSI of 30 or below. This market just doesn’t know where world wheat stocks are going. Funds were net buyers of CBOT wheat amid a volume of 70,053 futures and 12,965 options. Dry weather in the U.S. Plains was supportive. USDA placed the U.S. winter wheat crop at a 53% good-to-excellent condition, 92% planted (near the 5-year average), and 76% emerged (5% below the 5-year average). USDA said that 29.4 mi bu of U.S. wheat were inspected for export amid expectations for between 25-35 mi bu. The CFTC Commitment of Traders report placed large speculators in bullish positions at 11,634 lots, up 3,300 contracts. It was noted in news that Italian farmers were going to plant much more wheat in 2008. Rice production in that country is likely to be reduced. Producers should have sold all wheat stocks by now and hold off pricing any more of the ’08 crop at this time.

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