13 February 2008

6 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mixed on Monday. FEB’07LC futures finished off $0.025/cwt at $92.170/cwt but $1.645/cwt higher than last Monday. The APR’08LC contract closed even with last Friday at $95.100cwt, but $1.175/cwt over a week ago. JUNE’08LC futures were up $0.250/cwt at $94.450/cwt. The market is hopeful for spring and summer grilling. Lower CBOT corn, soybeans, and wheat were helpful. Cash cattle were $1 - $1.25/cwt higher last Friday as USDA’s 5-areaaverage price was placed at $91.73/cwt. Packers were willing to bid more because of better margins last week. According to HedgersEdge.com, the average beef plant margin for Monday was estimated at $26.80/head, $2.90/head better than last Friday and $47.35/head better than a week ago. Higher retail beef prices also helped. USDA increased the choice beef cutout by $0.52/cwt to $150.73/cwt. Cash sellers should hold cattle and sell only when cattle are ready while trying to hit these rallies. It might be a good idea to price corn inputs at this time. This volatility will continue until the U.S. crops are planted as corn wars with soybeans for acres.

FEEDER CATTLE at the CME were up on Monday. MAR’08FC futures closed at $105.900/cwt, up $0.875/cwt and $1.150/cwt higher than a week ago. MAY’08FC were up $0.850/cwt $113.050/cwt. The AUG’08FC contract topped all contracts with $113.950/cwt. Falling grain markets and tight supplies were supportive. Cash feeders were up sharply by $2-$4/cwt at the much watched Oklahoma City feeder auction. The latest CME Feeder Cattle Index for February 7 was placed at $101.61/cwt, up $0.67/cwt. Feeder sellers should consider selling cattle on these rallies. It might be a good idea to price corn inputs at this time. This volatility will continue until the U.S. crops are planted as corn wars with soybeans for acres.

LEAN HOGS on the CME closed down on Monday with the exception of the April ’08 and the June ’08 contracts. FEB’08LH futures were off $0.225/cwt at $57.850/cwt and $1.925/cwt lower than a week ago. The APR’08LH contract closed at $65.075/cwt, up $0.200/cwt and $2.125/cwt lower than last Monday’s close. Commercial hedging, warmer weather expected to increase hog marketings, and April/June short covering pressured the deferred months. The February contract is due to expire on Thursday. Slaughter houses are expected to keep the current kill rate up at 430,000 head over estimates for between 423,000 – 425,000 head. The average pork plant margin for Monday was estimated at $5.80/head, $2.40/head higher than last Friday but $3.10/head lower than last Monday, according to HedgersEdge.com. Also last Friday USDA put the pork cutout value at $61.16/cwt, up $0.36/cwt and the highest it’s been since October 22. The latest CME Lean Hog Index was placed at $57.88/cwt, up $0.60/cwt. It would be a good idea to move hogs as soon as they are ready to take advantage of these better prices. Prices may not hold if warmer weather comes as predicted and loosen supplies. As mentioned in the Live Cattle and Feeder Cattle section of this report, it might be a good idea to price corn inputs at this time. This volatility will continue until the U.S. crops are planted as corn wars with soybeans for acres.

CORN on the Chicago Board of Trade (CBOT) closed down on Monday. The MAR’08 contract finished down 4.4¢/bu at $5.034/bu and 7.0¢/bu lower than last week at this time. The DEC’08 contract closed down 4.6¢/bu at $5.252/bu and 7.8¢/bu lower than last Monday. The lifting of wheat price limits encouraged funds to liquidate some long positions and actively unwind bull-corn/bear-wheat spreads. This and profit taking helped corn find lower prices. Lower-than-expected exports were also somewhat bearish as USDA reported corninspected- for-export at 40.7 mi bu vs. expectations for between 43-48 mi bu. On the supportive side was news that Argentina’s ‘07’08 corn crop was producing spotty results after uneven rainfall patterns. Current wet weather in both Brazil and Argentina is hampering the harvest. This is seen as bullish. Cash corn bids in the U.S. Midwest were mostly steady to firm amid sluggish farmer sales. Cash corn in the U.S. Mid-Atlantic States was firm to higher with bids early Monday ranging from 4.0¢/bu – 8.0¢/bu higher in many places. Funds sold 5,000 contracts as the CFTC Commitment of Traders reported large speculators increasing net bull positions to 238,000 contracts, up 14,200 lots. It might be a good idea to hold off on forward contracting any more of the ’08 crop. Past recommendations were to price at least 10%-20% of that crop if you hadn’t done so already. Remember, pricing recommendations each week are for the producer or hedger who hasn’t priced any crop or input at all or for those who have to hold those positions.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were off on Monday amid short covering, profit taking and long liquidation. Has the market reached a double top or have increased price limits in wheat forced funds to liquidate long positions on higher margin calls? That is the $64.00 question. The MAR’08 contract finished at $13.260/bu down 13.0¢/bu and dead even with this time last week. The NOV’08 soybean contract ended at $12.820/bu, off 3.0¢/bu and 12.4¢/bu lower than a week ago. Soybeans were pressured by lower corn and wheat prices but held ground late in the day even though wheat headed for sharp declines. USDA placed soybeans-inspected-for-export at 37.804 mi bu vs. expectations for between 27-32 mi bu. As with corn, weather in South America was supportive in some locales and a detriment in others. Cash soybeans in the U.S. Midwest were sluggish while farmers waited on higher prices. Cash beans in the U.S. Mid- Atlantic States were steady to higher with bids ranging from 5.0¢/bu-7.0¢/bu higher. The CFTC Commitment of Traders report showed funds growing bullish positions in soybeans by a modest 9,300 lots to 118,000 contracts. It might be a good idea to consider holding off pricing any more of the ’08 crop.

WHEAT futures in Chicago (CBOT) were sharply lower on Monday. Mar’08 futures closed at $10.480/bu down 45.0¢/bu but 75.0¢/bu higher than last Monday. The JULY’08 contract closed at $9.790/bu, off 4.4¢/bu but 74.6¢/bu higher than a week ago. Limit moves are now changed for wheat. The CFTC increased limits from 30.0¢/bu to 60.0¢/bu. The new rules are that on the first day after a limit move the limit can increase (50%) to 90.0¢/bu and on the next if two contracts remain a limit up or down on the same exchange. Limits would expand to $1.35/bu (another 50%) if two contracts remain a limit up or down the next consecutive day. The exchange’s limits will remain open for three days before reverting back to 60.0¢/bu once that wheat price does not close at the limit move. This is to allow for better profit taking so the market is not encourage to just keep going up. However, everything comes with a price. The CME Group raised margins to trade CBOT wheat on Friday from $3,038.00/contract to $4,050.00/contract. USDA placed exports within expectations for between 15-20 mi bu at 17.746 mi bu. In other export news Ukraine’s wheat harvest looks really good most likely increasing 5.5 mi tonnes (202 mi bu) to 19.5 mi tonnes (717 mi bu). Brazil is thinking about lifting quotas for duty-free wheat imports if Argentina supplies remain tight while continued demand from China and India only worsen supplies. Cash wheat prices are firm all across the U.S. Funds sold between 4,000 and 5,000 contracts while the CFTC Commitment of Traders report showed bulls increasing positions by almost 2,000 lots. It is still not advised to price more than 40% of the ’08 crop. However, it wouldn’t hurt to see if 10% of the 2009 crop and 10% of the 2010 crop could be priced at this time.