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Weekly Roberts Report

29 April 2009

Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.

Are we in an economic “Commodity Bubble” that’s burst or is about to? According to the latest Brock report we are. Three bubbles are cited: the high-tech bubble of 2000; the housing bubble of ‘06/07; and now a commodity bubble of 2008. Brock’s comments have merit with me. We’ve seen really wild Relative Strength Indices (RSI) and market volatility in these “exuberant” markets. And, we’ve been reminded that even though the RSI is a significant help to traders that on the other side of the issue if fundamental supply and demand situations change significantly and continue to change, the market will defy the RSI.

We now come to fundamental questions for commodities like corn. Are we now in a cyclical pricing era where the new price norm for corn is $4.00/bu or higher because of a new demand fundamental such as ethanol or are we in a “commodity” bubble? I believe the former. One thing I agree with Mr. Brock on is his statement, “Your approach toward investing and price comparisons needs to be adjusted significantly. Producers are holding out for $4+ corn and buyers are anxious to buy, fearful of reliving the stress caused by last year’s bull market.” Whatever happens, this uncertainty in our markets has created a fear in the market now more than ever. That’s why commodities fell so much today on fears of a “swine flu pandemic!” Let’s remember the bird flu scare of 1990’s. This did not have a lengthy influence on grain prices. Initial World Health Organization (WHO) projections were that between 2 and 7 million people would die from H5N1 bird flu. To date, there have been 257 deaths. The market is emotional now amid inflated opinion. You won’t get swine flu from eating pork if it is cooked and handled in the recommended ways!

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) finished off on Monday. The APR’09LC contract, which is set to expire on April 30, closed at $86.150/cwt; off $0.700/cwt and $1.225.cwt lower than a week ago. The AUG’09LC contract was down $0.675/cwt at $82.300/cwt; $0.900/cwt under last Monday’s close. DEC’09LC futures closed at $88.375/cwt; off $0.800/cwt and $0.775/cwt lower than last report. Selling was fueled by large non-commercials on swine-flu-fears. Commercial traders were net buyers. Light volume pressured prices. USDA on Monday put the Choice Boxed Beef cutout at $152.18/cwt, up $0.24/cwt. Stumbling hog prices, sell stops, and bear spreading hurt live cattle futures. At one point cattle front months rallied buoyed by thoughts that consumers would stock up on beef and shun pork in the near term. However, the rally could not be sustained because of the flu panic generated in the media. Cash cattle were off $0.96/cwt from last week with USDA reporting the 5-area price at $87.93. According to HedgersEdge.com average packer margins were $5.55/head better than this time last week. The average processor margin was placed at a positive $17.50/head based on the average buy of $88.16/cwt vs. the average breakeven of $89.56/cwt. Feed buyers should consider buying more feed needs again this week.

FEEDER CATTLE at the CME closed down on Monday. The APR’09FC contract closed at $99.450/cwt; off $0.300/cwt but $0.900/cwt over this time last week. The April futures contract will expire on April 30. AUG’09FC futures finished at $99.750/cwt; down $0.600/cwt and $0.950/cwt lower than last report. Lower live cattle and the market scare had traders running for cover out of August into May futures and many sell stops. The CME Feeder Cattle Index was placed at $100.11/cwt; up $0.05/cwt. It should still pay to hold feeders to heavier weights if you have the grass and good growing conditions.

LEAN HOGS on the CME closed down on Monday as nearby contracts registered limit down amid swine flu fears. You can’t get sick from eating pork! The MAY’09LH contract closed at $66.00/cwt; down $3.000/cwt and $4.925/cwt lower than this time last week. The JUNE’09LH contract was off $3.000/cwt at $69.600/cwt and $2.700/cwt lower than last Monday. In case you haven’t read, China and Russia have both banned Mexican and U.S. pork over swine fever!? There have been no reported cases of swine fever in U.S. hogs as of Monday, April 27. The reports are confined to “swine flu” in humans. Fear persisted that swine flu could impact trade with Mexico, the second largest export market for U.S. pork. Several floor sources reported 600-800 contracts limit down at the close amid worries that the public will quit eating pork because they think it will make them sick with the swine flu. The Secretary of the U.S. Department of Agriculture issued a formal statement Monday afternoon noting that humans will not get sick from eating pork prepared using standard safe practices. Cash hogs were generally weak on Monday and will most likely continue until more is known about the control of the outbreak. USDA on Monday put the Pork Carcass Cutout at $59.75; down $1.13 from last week. The latest CME Lean Hog Index was placed at $61.82/; up $0.72 and $3.93 over this time last week. According to HedgersEdge.com, the average pork plant margin was lowered $8.90/head to a negative $10.10/head. This was based on the average buy of $45.73/cwt vs. the average breakeven price of $41.79/cwt. It is a good idea to price more feed needs now and sell hogs when ready.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday on “swine-flu” jitters. MAY’09 corn futures closed at $3.722/bu; off 4.75¢/bu but 2.75+¢/bu higher than last week. The JULY’09 contract closed at $3.806/bu; down 5.0¢/bu but 2.0¢/bu higher than last Monday. DEC’09 corn futures finished at $4.014/bu; off 5.25¢/bu but 2.75+¢/bu over last report. The market was concerned about a possible decline in meat and feed consumption in light of the recent world outbreak of swine flu. The talk of a global pandemic sent the market south. One floor source told me, “It might be enough to break the back of corn prices.” However, I agree with Dr. Darrel Good from the University of Illinois in that the depth of demand concerns will largely be set by the extent of reported swine flu cases. Some good news though; the slow pace of getting the U.S. corn crop planted and a poor South American corn crop are providing mild support to prices. USDA late on Monday placed the U.S. corn crop at 22% planted vs. a five-year average of 28% planted this time of year. Reducing demand for corn are recent actions taken by China and Russia to ban Mexican and U.S. pork imports due to what they are calling “swine fever.” As a result, exports were off as USDA placed corn-inspected-for-export at 33.0 mi bu vs. expectations for between 34.0-36.0 mi bu. Funds sold around 7,000 contracts as large non-commercial speculators went “net-short” for the week ending last Tuesday. Cash corn in the U.S. mid-section was mostly steady amid light producer sales. Ethanol futures were lower settling near the $1.55/gal level. Hold off on pricing any more of new crop corn sales. Old crop corn should be gone.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were off on Monday. MAY’09 soybean futures closed at $10.046/bu; off 35.5¢/bu and 13.75¢/bu lower than this time last week. The JULY’09 contract finished off 37.0¢/bu at $9.970/bu and 14.5¢/bu under last Monday. The NOV’09 contract closed at $9.044/bu; down 28.75¢/bu but only 1.5¢/bu lower than last report. As with corn the soybean market was shaken up over swine flu reports that are said to have killed more than 100 people in Mexico and affected people elsewhere. Most of the time whenever an epidemic threaten humans, markets panic in over-reaction as traders cover bull positions as selling heats up. China and Russia banning pork imports from Mexico and the U.S. were not supportive. A cut in feed needs is perceived. USDA put soybeans-inspected-for-export at 7.0 mi bu vs. expectations for between 12.0-18.0 mi bu. China didn’t need the soybeans this week! As the U.S. corn crop planting pace slows traders are thinking more soybeans will be planted. This also weighed on prices. USDA put the U.S. soybean planting pace at 3% planted vs. a 5-year average of 5% this time of year. Cash soybeans were mostly steady in slow farmer selling. It might be a good idea to price up to 50% of the ’09 crop at this time.

WHEAT futures in Chicago (CBOT) closed off on Monday. The MAY’09 contract closed at $5.080/bu; down 24.25¢/bu and 4.0¢/bu lower than this time last week. JULY’09 wheat futures finished off 23.75¢/bu at $5.194/bu and 47.25¢/bu lower than a week ago. Nervous-Nellies liquidated bull positions amid some profit taking as, guess what, flu-news weighed on prices. Wet weather in the northern U.S. Plains was slowing spring wheat planting as well. USDA late Monday put spring wheat seeding progress at 15% vs. a 5-year average of 36% and 32% planted this time last year. Winter wheat crop conditions were neutral with USDA placing the U.S. winter crop condition a 45% good-to-excellent vs. 43% last week and 46% this time last year. Continued dry weather in Argentina’s wheat producing area was seen as supportive. Slow exports were not. USDA put wheat inspected for export at 12.142 mi bu vs. expectations for between 14.0-19.0 mi bu. Funds sold about 4,000 lots and remained in net-bear territory for the week ended April 21. It is still a good idea to hold off pricing any more of the ’09 crop at this time.

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