23 April 2008

7 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were off amid profit taking on Monday with the exception of the April ’08 contract. The APR’08LC contract closed at $90.025/cwt, up $0.475/cwt and $0.875/cwt higher than a week ago. JUNE’08LC futures were off $0.375/cwt from Friday’s close at $91.950/cwt. However, this was $1.850/cwt higher than last Monday. Futures started out higher on reaction to USDA’s Cattle on Feed report from last Friday but support was limited to the large premium of June futures to cash, concern over the weakening U.S. dollar, and ever increasing fuel prices. Last Friday USDA placed cattle-on-feed at 100% of last year vs. expectations between 100.4%-102%. March placements were 89% of last year, well below estimates around 92.4%. March marketings were 100% of a year ago and above the 97.9% trade estimate average. News of fresh export to South Korea of cattle younger than 30 months was supportive. Cash cattle in the Plains were reported up as much as $3/cwt at $90.00/cwt while the USDA 5- area price matched that number at $90.00/cwt. Cattle slaughter was placed at 127,000 head vs. 125,000 this time last week and 122,000 head this time last year. USDA put the choice beef at $152.75/cwt, up $1.54/cwt and the highest it’s been since early June, 2007. According to HedgersEdge.com, the estimated average packer margin was in the black at $78.25/head. The average packer purchase was placed at $93.79/cwt vs. a breakeven buy at $87.48/cwt. Cash sellers should consider pricing cattle on these cash rallies before the end of the week. Corn inputs should be priced before Wednesday ahead of Wednesday’s rainy forecasts.

FEEDER CATTLE at the CME closed up on Monday. The APR’08FC contract finished at $101.550/cwt, up $0.050/cwt and $2.000/cwt higher than last Monday. MAY’08FC futures were up $0.300/cwt at $106.025/cwt and $2.950/cwt higher than a week ago. Lower corn and soybean futures and USDA’s report of decreased placements were bullish for prices. Firmer cash feeders were also supportive for futures. The latest CME Feeder Cattle Index for April 17 was placed at $100.57/cwt, up $0.76/cwt. Feeders show some strength but it might be a good idea to get some sales on the books at this time. Feeders may still rally a little more but try and put some money in the bank now. Pricing some nearby corn inputs may not be a bad idea either.

LEAN HOGS on the CME were off on Monday. The MAY’08LH contract closed at $72.675/cwt, off $0.050/cwt but $3.070/cwt higher than a week ago. JUNE’08LH futures were off $1.375/cwt closing at $72.975/cwt. The market traded lower on worries that U.S. pork supplies in storage had swelled in March. USDA confirmed the estimates after trading showing pork supplies in cold storage at record high levels and also well above trade estimates. A decrease in exports and record production are the culprits. USDA late on Monday placed total pork stocks as of March 31 at 657.1 mi lbs, up 51.4 mi lbs from February and 162.3 mi lbs over a year ago. Long liquidation and some fund position squaring added to losses as the lean hog market looks headed for a major top. In other news, high feed costs and worries over U.S. Country-of-Origin- Labeling rules encouraged Canada to start herd liquidation and piglet euthanization. USDA last Friday put the pork cutout value at $67.50/cwt, off $0.20/cwt but well over the high of September 19, 2007. The latest packer margin was estimated at a negative $0.75/head according to HedgersEdge.com. Breakeven buy for pork processors was placed at $48.28/cwt vs. the average buy at $48.53/cwt. The latest CME Lean Hog Index was up $0.98/cwt at $61.67/cwt. It is a good idea to keep market hogs sold as soon as they are ready while giving strong consideration to pricing nearby corn and soybean input needs.

CORN on the Chicago Board of Trade (CBOT) closed down on Monday on chart selling and better weather reports for corn seedings. The MAY’08 contract finished at $5.8020/bu, off 19.2¢/bu and 11.4¢/bu lower than this time last week. The DEC’08 contract closed down 17.4¢/bu at $6.052/bu and 8.0¢/bu lower than a week ago. The market is banking that producers will gear up planters in the next few days to take advantage of better weather. Way overbought conditions in corn ramped up selling amid stale fundamental news as many contracts traded below $6.00/bu. The 14-day Relative Strength Index (RSI) for December ’08 corn futures ended the day at 87.73. An RSI at or above 70 is considered overbought and at or below 30 is considered oversold. The 14-day RSIs for the July and September ’08 contracts finished well over 90.0 with the July trading at limit down at one point in the day before recovering near the close. Watch the weather. Monday’s traders worked on expectations that USDA would place U.S. corn crop seedings between 7%-10%. Things will be very interesting on Tuesday as late on Monday USDA placed the U.S. corn crop at 4% planted vs. 9% planted this time last year and a 17% 5-year planted average. Expect trading to be volatile. The Argentinean corn harvest is proceeding at a very slow pace due to wet weather and unhappy producers over export tariffs. USDA put the corn-inspected-for-export number at 36.2 mi bu vs. expectations between 40-45 mi bu. Funds were very active today, selling off almost 12,000 contracts. Ethanol futures ended mostly lower on Monday. It is still a good idea to hold pricing levels of the ’08 crop between 40%-50%. Market volatility will offer future (although brief) opportunities to price more corn. A spring-planting top appears imminent.

SOYBEAN futures on the Chicago Board of Trade (CBOT) skidded lower on Monday on chart selling and improved weather. The MAY’08 contract finished at $13.154/bu, off 46.0¢/bu and 57.0¢/bu lower than last Monday. The NOV’08 soybean contract ended at $12.354/bu, up 45.4¢/bu but 51.6¢/bu lower than last Monday’s close. The selloff in corn led the way for soybeans. UDSA’s soybeans-inspected-for-export number was neutral at 19.663 mi bu vs. estimates for between 16-21 mi bu. Five CBOT floor sources said this afternoon that the market is waiting on more information regarding talks between farmers in Argentina and the Argentinean government following the strike over soy product export taxes. The lack of news was seen as supportive of prices. Soybean crushers there were increasing inventories on fears that the strike could restart. Funds sold over 5,000 contracts. The CFTC Commitment of Traders report had bullish funds increasing net long positions for the week ended April 15. The 14-day RSI for November ’08 soybeans ended the day at 66.16. More technical selling could be in the offing but the weather remains the primary factor to volatility in soybeans. Having 40% of the 2008 crop sold is still a good place to be. If you can price any of the 2009 crop it still would be a very good time to price up to 20%. Prices for the 2008 crop may be headed toward typical harvest lows if good planting numbers are posted.

WHEAT futures in Chicago (CBOT) were down on Monday on weakness in corn and soybeans. The MAY’08 contract closed at $8.456/bu, off 24.2¢/bu from last Friday’s close; 50.4¢/bu lower than a week ago, and 75.4¢/bu lower than two weeks ago. The JULY’08 contract closed at $8.594/bu, 25.4¢/bu lower than last Friday, 51.0 cents lower than last Monday and 75.0¢/bu lower than two weeks ago. Two-weeks-ago prices are noted to indicate that harvest is fast approaching and prices are reflecting that by dropping over 8% in each contract. Not all this is due to an approaching harvest. News of Canada’s bearish planting report of increased seedings by 16.2% over last year weighed on wheat as did weakness in soybeans and corn. Thin technical signs added fuel to the selloff with May wheat falling below its 200-day moving average. Monday’s weak prices did find some support in fresh export demand. Egypt said it wanted between 55,000-60,000 tonnes (2.0-2.2 mi bu) of U.S. wheat ready for shipment between 6/1/08and 6/30/08. Jordan tendered an offer for 100,000 tonnes (3.67 mi bu) while Morocco was said to be seeking 24,450 tonnes (898 thou bu). USDA said on Monday that 22.409 mi bu of U.S. wheat was inspected for export vs. expectations for between 15-20 mi bu. Funds sold about 2,000 lots while the supplement to the CFTC Commitment of Traders report had funds going to net bear positions by 2,730 contracts from small net bull positions for the week ended April 15. Hopefully the crop was priced at 50% on previous advice. If not, it might be a good idea to get there this week.