30 January 2008

6 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed mixed on Monday. February ’08 – June ’08 contracts were off while August ’08 – February ’09 were gainers on thoughts the U.S. cattle herd is shrinking. FEB’07LC futures finished off $0.650/cwt at $90.750/cwt. The APR’08LC contract closed at $93.825cwt, off $0.550/cwt while the JUNE’08LC contract finished down $0.425/cwt at $92.575/cwt. The nearbys were pressured by the announcement on Friday that Tyson Foods was stopping cattle slaughter at Emporia, KS. That plant processes 4,000 head per day. This news followed months of losses due to more slaughter capacity than there are cattle. According to HedgersEdge.com the average beef plant margin for Monday was estimated at a negative 20.55/head, $0.30/head worse than Friday but $0.25/head better than a week ago. Estimated breakeven for packers was placed at $88.41/cwt while packers were able to buy at $90.03/cwt, a difference of a minus $1.62/cwt. On Friday, USDA placed the monthly Cattle-on-Feed numbers at 101% of a year ago while decreasing December placements to 99% of last year. The market was expecting an increase of 102.7%. December marketings were up at 101% of last year vs. the average expectation for 100.4%. USDA is expected to publish its semi-annual U.S. Cattle Inventory report this coming Friday which was supporting news for deferreds. The 5-area cash cattle average price published by USDA was steady to firm ranging from $90-$90.50/cwt. USDA on Monday place the choice boxed beef cutout at $142.96/cwt, up $0.220/cwt. Cash sellers should go ahead and sell those heavy calves off pastures. A $0.25 cent/bu increase in a bu of corn increases the cost of a 500-600 weight calf by about $3.50/cwt. It increases the cost of a 700-900 weight feeder by about a $1.00/cwt. It might be a good idea to price corn at the low points as markets take profits. This volatility will continue until the U.S. crop is planted as corn wars with soybeans for planted acres.

FEEDER CATTLE at the CME were up Monday. JAN’08FC futures closed at $99.550cwt, up $0.950/cwt. The MAR’08FC contract finished at $102.675/cwt, up $0.575/cwt. Feeders were supported by reports of higher cash cattle in Oklahoma City and other northern markets. The Oklahoma City market is closely watched. Gains happened despite higher corn because the market is expecting lower feeder placements. The CME Feeder Cattle Index for January 24 was placed at $98.090/cwt, up $0.39/cwt. Feeder sellers should consider selling cattle on this uptick while pricing corn on any downticks in that market.

LEAN HOGS on the CME closed up on Monday on short covering and news that China is interested in U.S. pork again (if that can be believed). At any rate, the news was good for prices. FEB’08LH futures were up $1.050/cwt at $57.250/cwt. The APR’08LH contract closed at $63.500/cwt, up $1.550/cwt. Futures were not supported in early trading but gained on the news originating from Tyson even though the announcement was brief and did not name a timetable for the deal. Traders were trading that news combined with losses from disease in that country. Expected processing cutbacks on thinning margins and more hogs moving to market in warmer weather weighed on the market but rallied after bear spreads started unwinding amid mild fund buying. According to HedgersEdge.com, the average pork plant margin for Monday was estimated at a positive $5.65/head, $0.40/head worse than last Friday and $6.10/head worse off than a week ago. The average breakeven buy for pork plants was estimated at $38.64/cwt vs. an average breakeven of $40.77/cwt, a difference of $2.13/cwt. An easing hog slaughter provided some relief to futures. USDA on Friday put pork cutout at $56.59/cwt, up $0.55/cwt. The latest CME Lean Hog Index was placed at $51.45/cwt, up $0.82/cwt. Holding hogs sales to heavier weights if possible might yield more returns in the short run. Pricing corn inputs on any profit taking in the futures market is advisable.

CORN on the Chicago Board of Trade (CBOT) closed up on Monday. The MAR’08 contract finished up 3.6¢/bu at $4.982/bu. The DEC’08 contract closed up 0.6¢/bu at $5.104/bu. Gains in wheat, good export numbers and a crude oil rebound were supportive. Improved weather in South America and worries over recession were not. USDA placed corn-inspected for export at 61.094 mi bu vs. expectations for between 34-40 mi bu. Improving weather in the Brazilian corn-crop areas was seen as helping the crop there. The CBOT increased margins for corn trading to $1,350, up from $1,283 effective for Monday night trading amid concerns for market volatility. Trading sources said the large number of long positions in corn futures made ripe conditions for profit-taking if large funds and speculators in long positions liquidated positions. The supplement to Friday’s CFTC Commitment of Traders report showed funds decreasing bull positions in CBOT corn to 233, 616 contracts, down 10,000 lots from Friday and down 15,713 lots from the previous week. The March contract traded above all key moving averages as the RSI approached 60. An RSI of 70 or above is considered an indication of an overbought market. Cash corn bids were steady to somewhat weaker amid some sales. Cash bids for corn in the U.S. Mid-Atlantic States were steady at 4.0-6.0¢/bu higher. If you have any of the ’07 crop left, it would be a very good idea to price at least half of it while forward contracting 10%-20% of the ’08 crop. Out of the money May Call Options might be a considered if you are concerned about rising prices. Prices could trend higher on increased volatility as spring approaches and soybeans compete for acres.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were mixed on Monday with nearby contracts up and deferreds off. The MAR’08 contract finished at $12.536/bu up 10.6¢/bu. The NOV’08 soybean contract ended at $12.320/bu, down 2.4¢/bu. Deferreds were pressured by expectations for increased plantings, improving crop conditions in Argentina, and recession worries. USDA put soybeans inspected for export at 27.669 mi bu vs. expectations for between 25-30 mi bu. As with corn, due to market volatility, margin requirements for soybeans were increased to $2,970 from $2,700 effective for Monday night electronic trading. The supplement to Friday’s CFTC Commitment of Traders report showed funds in bull positions decreasing 10,000 lots from Friday to 104,331 contracts. The March contract broke resistance at $12.550/bu, staying above the 50-day moving average of $11.830/bu. Cash bids for soybeans in the U.S. Midwest were steady to weaker while beans in the U.S. Mid-Atlantic States gained strength in both old crop and new as elevators sought product. It might be a good idea to consider pricing another 10% of the ’08 crop priced and speculate with the rest.

WHEAT futures in Chicago (CBOT) ground higher on Monday. Mar’08 and May ’08 futures closed limit up at $9.630/bu and $9.744/bu respectively. The JULY’08 contract closed at $9.080/bu, up 28.0¢/bu. September ’08 and December ’08 wheat contracts were also limit up. Minneapolis spring wheat futures led the way amid tight stocks. Exports were also supportive with USDA placing wheat-inspected for export at 24.371 mi bu vs. expectations for between 19-23 mi bu. Saudi Arabia verified plans to import wheat while at the same time decreasing purchases from its own farmers in order to conserve water. Winter weather is not helping either as it is not providing much significant moisture to the U.S. Plains region. The supplement to Friday’s CFTC Commitment of Traders report had funds cutting bear positions in CBOT wheat to 2,622 contracts, down 105 lots from the previous week. The March contract stayed above all key moving averages. Cash bids for wheat were strong amid a gaining basis. It is not advised to price more than 40% of the ’08 crop. It wouldn’t hurt see if 10% of the 2009 and 2010 crops could be priced now.

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