12 December 2007

7 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday as profit taking cut gains near the end. DEC’07LC futures finished up $0.375/cwt at $94.400/cwt and $0.175/cwt higher than last week at this time. The FEB’08LC contract closed at $97.125/cwt, up $0.375/cwt and $0.750/cwt higher than last Monday. Gains were driven by snowy weather as cold conditions in the Texas and Oklahoma panhandles were expected to slow livestock growth there as it stresses cattle on feed. Additional cold weather is forecast for the U.S. Plains beginning late Monday. Some deliveries were noted as the first delivery-day notice for December came about. Cash cattle traded lower on Friday but didn’t seem to dampen the market on Monday futures. USDA’s 5-aread average price for cash cattle was off $0.50/cwt to $93.50/cwt. USDA on Monday put choice boxed beef cutout at $148.51/cwt, up $1.20/cwt. Export expectations were supportive even while Japan on Monday said it was not ready to lift more restrictive age limits on U.S. beef imports. Packer margins are seen as negative but a little better. According to HedgersEdge.com, the average beef plant margin for Monday was estimated at a negative $46.75/head, $7.57/head better than last Friday but $16.25/head worse off than a week ago. Cash sellers should take profits on these rallying prices. If the weather breaks warmer, prices will most likely decline somewhat. December prices for corn may break due to their oversold conditions. It might be a good idea to hold off until the end of the week to buy more feed inputs.

FEEDER CATTLE contracts at the CME were up on Monday chasing live cattle. JAN’08FC futures closed at $106.125/cwt, $0.175/cwt higher than last Friday but $2.225/cwt lower than last Monday. The MAR’08FC contract finished at $107.700/cwt, up $0.250/cwt but $1.100/cwt lower than a week ago. Fears of colder weather and higher corn started the market out with losses in early trading but higher prices in live cattle produced gains for feeders near week ago levels. Cash feeder average price on the CME for Friday, December 7 was $106.86/cwt, down $0.120/cwt. An oversold condition in the JAN’08FC contract provided some support. A contract is said to be oversold with a Relative Strength Index (RSI) of 30 or below. The January 10-day RSI closed at 29.69. The latest CME Feeder Cattle Index for December 6 was noted at $106.98/cwt, up $0.10/cwt. Feeder sellers ought to hold off cattle sales until the cold snap breaks if you have pasture. Immediate feed needs may be running short if you haven’t priced corn on sags last week. If you did, you might consider trying to price corn on the downside dips as we go through the week.

LEAN HOGS on the CME posted gains on Monday. DEC’07LH futures closed at $55.825/cwt up $0.350/cwt and $1.125/cwt higher than last week at this time. FEB’08LH futures were up $1.650/cwt at $63.350/cwt and $2.125/cwt higher than a week ago. February/April spreading was noted. Chart based buying, short covering, and colder weather caused buyers to turn to pork protein for the meat case. Packers showed interest in getting kill rates up due to the colder weather in anticipation of limited truck runs from the farm as more weather is expected to disrupt pig shipments. Gains found technical buyers wanting in on the action as funds covered short positions. A couple of floor sources also said that traders are expecting the seasonal bottom to the hog market as prices improved amid burdensome hog supplies. Pork production has been on a record pace, as noted by USDA’s estimations last week. An estimated 2.397 mi hogs processed to set a new record. USDA’s daily processed rates have been as high as 431,000 head with actual numbers near the actual all time high of 427,639 hogs processed on November 13. Abundant supplies keep the plants running near capacity and will most likely stay that way due to profitable margins. The average pork plant margin for Monday was estimated at $7.05/head, $1.90/head lower than last Friday and $7.45/head lower than a week ago, according to HedgersEdge.com. USDA raised the pork carcass cutout value by $0.32/cwt on Monday to $59.37/cwt. The latest CME Lean Hog Index was set at $53.41/cwt, up $0.28/cwt. Cash sellers should keep sales current on the chance prices will fall off later in the week if the weather clears. It might pay to hold off pricing feed needs until about mid week.

CORN on the Chicago Board of Trade (CBOT) closed mixed on Monday in whiplash trading. The four nearby contracts were gainers while SEPT’08 through JULY’09 corn futures lost ground amid some profit taking by the funds. The DEC’07 contract finished at $4.001/bu, up 1.0¢/bu and up 14.1¢/bu over last Monday. MAR’08 futures finished up 0.4¢/bu at $4.176 and gaining 14.2¢/bu over a week ago. The DEC’08 contract finished at $4.396/bu, 0.6¢/bu lower than last Friday and 8.2¢/bu lower than last Monday. Corn was supported by rising wheat prices and a weaker U.S. dollar. Several floor sources said they expected bullish news on Tuesday in USDA’s report. USDA is expected to trim ending stocks in 07/08 U.S. corn by increasing export, feed, and ethanol demand numbers in the balance sheet that will be issued in Tuesday’s World Demand Supply Agriculture Estimate (WASDE) report. However, exports on Monday were disappointing. USDA placed corn inspected for export at 38.426 mi bu vs. expectations for between 48 – 54 mi bu. Corn found short term support on news that Argentina and Brazil were experiencing dry weather. Cash corn bids in the U.S. Midwest were steady amid slow farmer selling. Cash corn in the U.S. Mid-Atlantic States was stronger with many locations reporting between 4.0 – 8.0¢/bu higher. Funds bought about 1,000 contracts. As of December 4, the CFTC Commitment of Traders report on Friday had funds and large speculators for futures and options combined in net bull positions growing those positions to 249,265 contracts, an increase of 21,392 lots. Large funds in bear positions decreased those positions by 347 lots to 73,633 contracts. It might be a good idea to get the ’07 crop priced. Additionally, it might be a good idea to price up to 30% of the ’08 corn crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished well on Monday. The JAN’08 contract finished at $11.256/bu up 6.0¢/bu and 47.0¢/bu higher than last Monday. NOV’08 soybean futures ended at $11.544/bu, up 5.0¢/bu and 139.0¢/bu lower than a week ago. Yes, that’s right, $1.39/bu higher than a week ago! Trading in all months was up and down on the day on pressure from intermittent profit taking before finishing with a flourish to the upside. Dry weather in major soybean producing areas of Brazil rallied prices near the end. In other news, USDA is expected to trim 07/08 soybean ending stocks on Tuesday. USDA put soybean bu inspected for export at 32.915 mi bu. This was above estimates for between 23-27 mi bu. Cash soybeans were steady in the U.S. Midwest as farmers held onto their beans. Cash soybeans in the U.S. Mid-Atlantic States were 21.0 – 28.0¢/bu higher. As of December 4, Fridays supplement to the CFTC Commitment of Traders report had funds increasing bullish positions by 3,400 contracts to 123,372 lots. It might be a very good idea to consider pricing up to 30% of the ’08 crop.

WHEAT futures in Chicago (CBOT) surged amid strong fundamentals on Monday. DEC’07 wheat futures closed 5.4¢/bu lower at $9.090/bu and 54.0¢/bu higher than a week ago. This contract is up 152.8¢/bu over the last three weeks. The JULY’08 contract closed at $8.244/bu, up 16.4¢/bu and 67.4¢/bu higher than last Monday. All contracts gapped up on strong demand from exports and dry weather woes in other wheat producing countries. USDA is expected to tighten 07/08 ending stocks from the November forecast on Tuesday. This comes amid already dwindling world supplies. Exports were brisk with USDA noting 26.573 mi bu inspected for export amid expectations for between 16-21 mi bu. Pakistan bought 190,000 tonnes (~ 7 mi bu) at $428/tonne (~ $11.65/bu) of optional-origin (best source) wheat for delivery with 30 days after the deal is sealed. India’s State Trading Corp sent out a tender for up to 550,000 tonnes (20.2 mi bu) while another Indian company PEC Ltd. said it wanted to buy 150,000 tonnes (5.5 mi bu) of wheat. India usually doesn’t buy U.S. wheat but these orders take further supplies off an already tight world supply. China is selling out off its reserves into its domestic markets to keep local prices down. These are further signs supplies are tightening. Some bear spreading was noted taking profits ahead of the USDA WASDE report due out Tuesday. France’s farm ministry tried to cool world concerns by announcing that its farmers will plant 3.4% more wheat acres this year. In the U.S., moisture was forecast for the U.S. Plains Hard Red Winter wheat belt but most is expected to fall east of there. Funds bought between 2,000 – 3,000 wheat contracts. As of December 4, the supplement to Friday’s CFTC Commitment of Traders report had funds and large speculators growing net short positions in CBOT wheat by 200 lots to 12,941 contracts. It might be a good idea to have up to 40% of the ’08 crop priced at this time while speculating with the rest of the crop.

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