12 March 2008

7 minute read

North America

CME Group announced Monday that, pending CFTC approval, daily price limits will increase March 28, 2008, for corn, mini-sized corn, soybeans, mini-sized soybeans and soybean oil futures and options on underlying futures contracts. Corn price limits will be increased to $0.30 from $0.20 per bushel, soybeans to $0.70 from $0.50 per bushel and soybean oil to $0.025 from $0.020 per pound.

In addition, daily price limits for wheat, mini-sized wheat, corn, mini-sized corn, soybeans, mini-sized soybeans, soybean meal, soybean oil, oats and rough rice futures will increase by approximately 50 percent the following trading session when the price of two or more futures contract months within the first five to eight listed non-spot contract months (depending on the commodity's crop year), or the final contract month of a crop year, closes at limit bid or limit offer. Price limits can expand two consecutive times.

Daily price limits for these commodities will step back to their prior levels when no futures contract month for that commodity closes at limit bid or limit offer that day. The Kansas City Board of Trade is adopting the same price limits policy for its wheat contracts. Price limits will continue to be removed on the current contract month beginning on the second business day proceeding the first day of the delivery month. The premiums on options are subject to the same daily price limits as the underlying futures.

The CME Group says that price limit increases are necessary to maintain an orderly marketplace. Price levels and volatility for these commodities have increased significantly since the current daily price limits were established in 2000. Increasing price limits will allow market participants to continue to utilize the contracts for price discovery and risk mitigation without being unduly constrained by limit price moves.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mostly down on Monday with the exception of the FEB’09 and APR’09 contracts. The APR’08LC contract closed at $89.750/cwt, off $0.775/cwt and $2.900/cwt lower than last Monday. JUNE’08LC futures were up $0.500/cwt at $91.500/cwt but $2.875/cwt lower than a week ago. Prices were pressured by rising corn prices, June/April bear spreading, and lower cash prices. USDA’s 5-area average price on Monday was placed at $90.360/cwt, off nearly $2.75/cwt. USDA on Monday raised the choice cutout by $1.09/cwt to $148.80/cwt. According to HedgersEdge.com, the average beef plant margin for Monday was estimated at a negative $18.55/head, down $10.25/head from last Monday. Feed lot owners are reluctant to buy more feeders with rising corn and full lots already losing money. Cash sellers should sell cattle on rallies. It might be a good idea to hold off pricing corn inputs right now.

FEEDER CATTLE at the CME were down on Monday. MAR’08FC futures closed at $100.2/cwt, off $0.400/cwt and $1.475/cwt lower than a week ago. MAY’08FC futures were down $1.400/cwt $106.15/cwt but $1.200/cwt higher than last Monday. Cash feeders were slipping. The latest CME Feeder Cattle Index was placed at $101.06/cwt, down $0.73/cwt. Feeder cattle movement to lots is steady to firm and as feedlots lose more money they really don’t want to buy anymore right now. It might not be such a good idea to price corn inputs until later in the week. It is a good time to hold onto cattle if you have a little grass.

LEAN HOGS on the CME were down on Monday. APR’08LH futures were off $0.125/cwt at $57.725/cwt; $1.075/cwt lower than a week ago. The MAY’08LH contract closed at $68.400/cwt, off $0.225/cwt and $1.475/cwt lower than last Monday. Higher corn and crude oil prices and weaker cash hogs put the pressure on. However, an oversold market and good pork carcass cutout values were supportive. USDA put the pork cutout value at $59.46/cwt, up $0.36/cwt. April’s 14-day RSI finished below 30 at 27.64. A contract is said to be oversold with a Relative Strength Index value at 30 or below. The average pork plant margin for Monday was estimated by HedgersEdge.com at $8.90/head, $5.85 better than last Monday. The latest lean hog index was placed at $56.11/cwt, down $0.65/cwt. It might be a good idea to sell market ready hogs while not pricing any more corn at this time.

CORN on the Chicago Board of Trade (CBOT) closed up on Monday after a shaky start. The MAR’08 contract finished up 22.0¢/bu at $5.554/bu but even with this time last week. The DEC’08 contract closed up 19.6¢/bu at $5.796/bu and 2.6¢/bu more than Monday before last. After going limit-down in early losses corn prices rallied on strength in outside markets including wheat and crude oil. The market said last week’s losses on profit taking were enough amid bullish fundamentals and corn bidding for acres ahead of the World Agriculture Supply and Demand Estimate (WASDE) report which is due out tomorrow morning. Exports were mildly supportive as corn-inspected-for-export was placed at 44.71 mi bu vs. expectations for between 40-45 mi bu. Not many changes are expected in corn ending stocks at this point. Most folks are looking for the data due out March 31 in USDA’s quarterly stocks review. Many analysts are expecting ending stocks to dip slightly below the February forecast but we’ll just have to see. Large speculators bought about 8,000 lots on the day. Friday’s CFTC Commitments of Traders report showed large speculators decreasing long positions by 4,360 lots to 319,204 contracts. Those in bearish positions increased from even to 4,215 lots. Cash corn in the U.S. Midwest was off somewhat tip-toeing around the overnight fall in corn prices. However, as corn soared so did local prices. Corn in the U.S. Mid-Atlantic states was firm to higher in many places up as much as 19.0¢/bu. As was noted last week, you should not have any ’07 corn in the bin but in case you do, it would be a very good idea to sell all of it now. It would also be a good idea to consider pricing up to 30% of next year’s crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down on Monday posting what looks like a major high. Soybeans are finally looking like they believe the current fundamentals. The November contract looks like the formation of a head-and-shoulders is shaping up. This could mean lower prices as we go toward planting as the market thinks that soybeans have won some acres back. The MAR’08 contract finished at $13.880/bu up 47.0¢/bu from last Friday but down $1.564/bu (10.1%) from a week ago. The NOV’08 soybean contract ended at $13.000/bu, off 11.4¢/bu from Friday and 10.2% lower than last Monday. Even though soybeans ended lower, they were not nearly as low as early limit-down losses. Strength in crude, wheat, and corn were supportive. USDA’s WASDE report is not expected to change much thinking in the soybean sector. Many guessers are thinking that USDA will reduce ending stocks to 130 mi bu reflecting increased use. We’ll see. Weather conditions are favorable in South America but some harvest slowing was noted. USDA placed soybeans-inspected-for-export at 29,857 mi bu amid expectations for about that. China is expected to back off making new purchases while selling soybean oil reserves in-house. The CFTC Commitment of Traders supplement to last Friday had large speculators cutting net bull positions by 16,000 lots to 95,466 contracts. It was a good idea to get to 40% sold on the ’08 crop, and still is.

WHEAT futures in Chicago (CBOT) were up on Monday. Mar’08 futures closed at $11.400/bu, up 47.4¢/bu and 47.0¢/bu higher than a week ago. The JULY’08 contract closed at $11.216¢/bu, up 19.0¢/bu and $1.026/bu higher than last Monday. Outside markets of crude oil and a weak dollar were very supportive as the world continues to trudge along in a global shortage of wheat stocks. USDA on Monday put wheat-inspected for export at 18.122 mi bu vs. expectations for between 15-20 mi bu. Egypt did announce on Monday that it expected to produce 8 mi tonnes (234 mi bu) of wheat vs. 7.39 mi tonnes (272 mi bu) it produced last year. Cash wheat remained steady to firm as weather in the U.S. Plains continued to be good for wheat. Funds bought 4,000 lots while the CFTC Commitment of Traders report had large speculators going from bull positions to net bear positions in CBOT wheat by 1,867 lots. It is a very good idea to get to 40% of the ’08 crop priced if not there already. It still wouldn’t hurt to see if 10% of the 2009 crop and 10% of the 2010 crop could be priced at this time.