23 July 2008

5 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) fared better on Monday. The AUG’08LC contract closed at $98.500/cwt, up $1.000cwt from Friday but $0.625/cwt lower than last Monday’s close. OCT’08LC futures were up $0.600/cwt at $105.700/cwt but $0.700/cwt lower than last week at this time. Softening corn and grain markets; short-covering, and a general disinterest in selling were supportive. Traders are expecting USDA to show a reduced number of feeder cattle placed on feed and live cattle currently on feed in Friday’s Cattle-on-Feed report. August/October spreading was noted as short positions were rolled forward. The 14-day RSI for October ’08 live cattle ended near oversold conditions at 35.44. An RSI at or below 30 is considered oversold. This was supportive for prices. However, declining boxed beef values and weak cash markets weighed on prices. USDA placed the choice boxed beef cutout at $167.27/cwt, down $0.99/cwt. The USDA 5-area price for cash cattle came in at $97.21/cwt vs. $99.50/cwt last week and $101-$101.50/cwt two weeks ago. However, cash feeders in Oklahoma City on Monday were $1-$2/cwt higher. According to HedgersEdge.com, the average packer margin was $61.55/head based on the average buy of $98.540/cwt vs. a breakeven of $103.380/cwt. This was $3.45/head lower than this time last week. It might be a good idea to hold cattle to slightly heavier weights this week. It is a very, very good idea to price some feed inputs at this time.

FEEDER CATTLE at the CME closed mixed with the August and September contracts gaining while deferreds slumped on Monday. AUG’08FC futures were up $0.775/cwt at $114.650/cwt and $4.475/cwt higher than last Monday. The SEPT’08 contract finished the day at $115.075/cwt, up $0.575/cwt and $2.375/cwt higher than a week ago. Nearby pricing was optimistic about inputs and USDA’s next report while there still remains uncertainty about corn prices in coming months. Profit taking; back months dragging feeding margins in the red; and bearish premiums to the CME Feeder Cattle Index pressured prices. The CME Feeder Cattle Index was placed at $111.16/cwt, a gain of $0.24/cwt. It is a good idea to hold feeders to heavier weights if grass is available. Pricing feed inputs now is a very, very good idea.

CORN on the Chicago Board of Trade (CBOT) finished down again on Monday. The SEPT’08 contract finished at $5.892/bu, off 20.2¢/bu. The DEC’08 contract closed at $6.082/bu, off 20.2¢/bu; 74.0¢/bu lower than this time last week and $1.388/bu (18.6%) lower than two weeks ago. Chart based selling continued to pressure prices as funds liquidate long positions and the 14-day Relative Strength Index (RSI) stayed just below 70 at 67.63. An RSI at or above 70 is considered overbought. Support in the December contract is now at $5.49/bu with a measuring objective of $4.79/bu. Increased concern of congressional influence on curbing speculative influence in commodities; good crop weather, improving crop conditions; the settling of the export tax issue in Argentina; and reports that Brazil has planted a larger corn crop all have put pressure on prices. Rising crude oil prices are putting money back into jittery fund’s pockets supporting prices somewhat. Weather will continue now to be the leading factor in price volatility for crops. USDA placed the U.S. corn crop at 65% good-to-excellent, a 1 point improvement over last week. The August 12 USDA World Agriculture Supply Demand Estimate report is expected to show the effects (or non-effects) of the floods back in June. Exports picked up as USDA placed corn-inspected-for-export at 29.8 mi bu vs. expectations for between 23-27 mi bu. Cash bids in the U.S. Corn Belt were steady to weaker while those in the U.S. Mid- Atlantic States on Monday were between 15.0¢/bu -22.0¢/bu lower. Funds were net sellers. Hopefully up to 60% of the ’08 crop has been priced. It would be a good idea to price another 10% now.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were down on Monday. The AUG’08 contract finished at $14.094/bu, down 60.4¢/bu from last Friday’s close. NOV’08 soybean futures closed at $14.030/bu, off 45.0¢/bu and $1.560/bu (10%) lower than last Monday. Prices were pressured by sinking corn; good weather; lower wheat prices; as well as chart based selling and the same regulatory and international worries affecting the corn market. Good crop weather contributed to USDA placing the U.S. soybean crop at 61% good-to-excellent condition. This is 1% better than last week. Exports were disappointing with USDA placing soybeans-inspected-for-export at 3.6 mi bu vs. estimates for between 6–9 mi bu. Funds continued to shrink long positions amid fears that congress is going to do so for them. Unwinding of old crop/new crop spreads also pressured prices. Funds and large speculators were net sellers of soybeans. It would be a good idea to get up to 40%-50% of the ’08 crop sold now.

WHEAT futures in Chicago (CBOT) took another skid on Monday. The SEPT’08 contract closed at $7.910/bu, off 13.0¢/bu. JULY’09 wheat futures closed off 14.0¢/bu at $8.656/bu; 20.4¢/bu lower than this time last week. Good spring crop weather; prospects for a huge global crop; and sinking corn and soybean prices pressure the wheat market. According to USDA global wheat production for the ‘08/’09 crop is projected at 664 mi tonnes (24.4 bi bu) vs. the 611 mi tonnes (22 bi bu) grown last year. Export numbers were good with USDA reporting 28.4 mi bu inspected for export. Iraq bought 100,000 tonnes (3.7 mi bu) of wheat from the from Europe rather than the U.S. Harvest activity for the U.S. winter wheat crop is progressing very well placed at 71% harvested with very good yields being reported. USDA placed the U.S. spring wheat crop at 63% good-to-excellent condition, up 2% from last week. Some floor sources said that traders were expecting that number to drop by 2% rather than go up. We’ll see what happens tomorrow but my guess is that this will further pressure prices. Even though funds were busy buying at times today they were net sellers by 3,000 lots. Hopefully the entire 2008 wheat crop has been sold. It would be a good idea to have up to 20% of the ’09 crop sold now.