23 May 2007

7 minute read

North America

LIVE CATTLE on the Chicago Mercantile Exchange (CME) finished up on Monday. The JUNE’07LC contract closed at $93.600/cwt, up $0.950/cwt and $0.400/cwt higher than last week at this time. The AUG’07LC contract closed at $93.400/cwt, up $1.000/cwt and $0.425/cwt higher than last Monday’s close. Buying was energized on $1.00/cwt higher-than-last-week cash cattle and a 2% increase in cattle marketings in April. Friday, USDA put April marketings at 1.821 million head, up 2% from last year. April placements were 97% of last year’s numbers coming in at 1.573 million head leaving May 1 on-feed supplies down 2% from last year’s at 11.297 million head. Analysts’ pre-report estimates for marketings were placed at 99.9% of last year, placements 96% of last year, and on-feed supplies at 97.9% of last year. Cash cattle traded at $97-$97.50/cwt in the 5-area-average reported by USDA and $98-$98.50/cwt in Oklahoma. This put futures at a significant discount to cash. Cash cattle and boxed beef prices are seen as declining into early summer now that the Memorial Day meat buying by retailers is seen as done. Only time will tell. USDA on Monday put choice beef cutout values at $166.49/cwt, up $0.54/cwt. Packer margins were pushed further into the black. August/June spreading by funds was noted as lifting the August contract. Cash sellers are strongly encouraged to get cattle sold again this week. It is suggested to hold off pricing more short-term corn needs at this time.

FEEDER CATTLE contracts at the CME in the front three contract months finished down on Monday and all the rest except for the MAR’08FC finished even. The MAY’07 contract closed at 108.925/cwt, off $0.200/cwt and $0.625/cwt lower than last Monday. The AUG’07 contract closed at 113.70/cwt, off $0.025/cwt but $0.475/cwt higher than a week ago. Feeder losses were contained by gains in live cattle while gains in CBOT corn futures limited upside potential. The CME Feeder Cattle Index came in at $108.67/cwt, up$0.48/cwt, the highest it’s been since April 13. Cash sellers should continue to be patient in selling feeders if you have the pasture. It still looks like it will pay off with a premium for heavier feeders in the coming weeks. Holding off more short-term corn needs might be a good idea right now.

LEAN HOGS on the CME closed lower again on Monday. The JUNE’07LH contract finished up at $75.325/cwt, off $0.075/cwt but $0.825/cwt higher than last week at this time. JULY’07LH futures closed at $74.325/cwt, off $0.350/cwt, also higher than last Monday’s close by $1.55/cwt. Even though cash markets are starting out good this week the market was weighed down by expectations that cash sales would decline amid easing demand after Memorial Day. Packers are expected to slow slaughter rates later this week. In addition, slower pork exports and a seasonal slowing of pork demand held prices back even as market-ready hog supplies remain tight. This could help prices toward the end of the week. We’ll see. Futures is also showing signs of technical weakness after the June closed under the 40-day and 100-day moving averages. The July contract met resistance at its 20-day moving average. USDA on Friday put the pork carcass cutout at $77.92/cwt, up $0.18/cwt. The CME placed its latest Lean Hog Index at 73.13/cwt, up $0.04/cwt. According to HedgersEdge.com, the average pork plant margin for Monday was even with last Friday at a positive $2.70/head but $4.15/head lower than one week ago. Cash sellers should continue to keep hog sales current, pushing them off feed as soon as they are ready. Hog feeders should think about NOT pricing more short-term grain inputs at this time.

CORN on the Chicago Board of Trade (CBOT) closed higher on Monday. The July’07 contract finished at $3.810/bu, up 9.6¢/bu. The DEC’07 contract finished at $3.802/bu, up 13.6¢/bu from last Friday and 9.2¢/bu higher than last week at this time. DEC’08 futures finished at $3.952/bu, up 7.6¢/bu from last Monday’s close. Market worries included weather, firm cash markets, and talk of China slowing exports. Weather is always a factor after the crop gets in the ground. The major concern right now is a dry growing season with topsoil moisture running as much as 50% short to very short in many places amid spotty wet weather slowing planting progress in Iowa and Nebraska. That trend is expected to continue this week. The corn chart in last week’s report showed a falling wedge trading pattern. The market is not far enough along in the growing season to feel comfortable about yields. USDA reported disappointing export-inspection numbers with 22.653 million bu inspected for export amid expectations for between 34- 38 million bu. USDA confirmed the sale of 316,800 tonnes (12.5 million bu) corn for delivery in ’07 or ’08. The market expected USDA to report the US corn crop 94% planted. By 4:00 p.m. EST, USDA reported the US corn crop was 92% planted, 1% more than last year at this time and 6% more than the five-year average. Crop progress for corn shows the crop 67% emerged compared to 62% one year ago and a 56% five-year average. 78% of the crop is rated as good to excellent. Cash bids for corn were stronger by up to 7.0¢/bu in the U.S. Midwest and as much as 10.0¢/bu higher in the Mid-Atlantic States. Trade numbers from the CFTC’s Commitment of Traders report showed large speculators reducing net long positions in corn by 4,000 contracts to 135,351 lots as of May 15. Cash sellers should have considered pricing up to 40%-50% of next year’s production on previous advice keeping the rest to speculate with.

SOYBEAN futures on the Chicago Board of Trade (CBOT) ended higher a range of 5.0¢/bu– 8.4¢/bu on Monday. The JULY’07 contract closed at $8.004/bu, up 8.0¢/bu. NOV’07 futures also closed up 8.0¢/bu at $8.292/bu from last Friday and 29.8¢/bu higher than last week at this time. This is a whopping 57.0¢/bu higher than two weeks ago on prospects of not getting any more corn acres planted to beans. Technical signs were supportive even as the November 14-day Relative Strength Index (RSI) approaches overbought conditions near 70. A contract is said to be overbought above 70 and oversold below 30. Old crop and new crop futures broke through resistance of April highs and fueled speculative buying. Also bullish for beans was spillover strength from corn. China’s reportedly buying 110,000 (4 million bu) metric tons of US soybeans provided fundamental support amid bullish weather features. A couple of floor sources stated that even though the market rallied ,trading activity was kind of ho-hum. USDA reported the US bean crop 59% planted, 7% more than last year at this time and 11% more than the 5-year average. It was also reported that the US soybean crop was 21% emerged compared to 16% last year and an 18% 5-year average. If you have not priced up to 60% of the 2007 crop by now you might want to think about doing so. Those who bought Call options last week are smiling.

WHEAT futures in Chicago (CBOT) also closed higher on Monday. JULY’07 wheat futures finished up 8.2¢/bu at $4.794/bu. However, this was 17.0¢/bu lower than last Monday’s close. This was considered a short-covering rebound from last Friday’s drop. CBOT corn provided support to the bulls. Egypt was noted as buying 60,000 tonnes (2.2 million bu) of US wheat and the same amount from Russia. USDA reported 22.2 million bu of US wheat were inspected for export amid expectations for between 16-20 million. Seasonal pressure came into play as harvest limited the market’s advance. USDA’s weekly crop condition report late on Monday showed wheat 59% good to excellent. This was 1% below the market’s expectations traded today but 1% better than last week’s rating. European Union wheat was receiving better crop weather easing fears of drought there. India sought bids for a 1 million tonne (36.7 million bu) wheat tender while Mozambique was reported to be willing to spend up to $131 million U$S for wheat and corn after drought and floods cut agricultural production in that country by 60% this year. The CFTC’s Commitment of Traders report showed large speculators (not including index funds) broadening net short positions in CBOT wheat by almost 2,000 lots to 10,987 contracts as of May 15. Index funds trimmed bullish positions by nearly the same margin to 185,194 lots. Producers who have priced between 60%-80% of the ‘07 crop are still in good shape.

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