9 April 2008

7 minute read

North America

Noteworthy: The Commodity Futures Trading Commission (CFTC) announced it will hold a public meeting on April 22 at 9:00 a.m. to discuss factors affecting the agriculture markets. This includes divergence between futures and cash prices, higher margin requirements, questioning the role of speculators, and commodity index trader impact on market participants. The current CFTC Chairman, Walt Lukken, says he wants to hear from participants to make sure that the exchanges work properly in price discovery and risk management. The meeting is open to the public but due to the high interest better come early to get a seat. It will be held at the CFTC headquarters located in Washington D.C. The meeting is slated to include representatives from USDA and a wide range of agricultural stakeholders from the exchanges to traders to merchandisers to producers. More to come next week.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were up on Monday with the exception of the nearby April contract. The APR’08LC contract closed at $87.875/cwt, off $0.025/cwt but $0.450/cwt higher than a week ago. This contract was under pressure by talk of deliveries against it. JUNE’08LC futures were up $0.300/cwt at $89.500/cwt and $1.750/cwt higher than last Monday. Futures were supported by higher cash cattle. Trading between $85-$86/cwt last week, live cattle are expected to be up $0.50-$1/cwt this week. The USDA 5-area-average for Friday, April 4 was placed at $86/cwt. See Fig. 1 below for trend. Trading was light on Monday.

Figure 1. The red line represents 2008

Months farther out were the biggest gainers as trade estimates for lower placements are being forecast below year-ago-levels for March and for April. USDA will release its next cattle-on-feed statement on April 18 showing how many cattle were in feedlots as of April. On Monday, USDA put choice cutout values at $137.18/cwt, up $0.09/cwt. The choice/select spread was off by $0.09/cwt at $0.73/cwt. Folks are willing to pay a little more for meat as of Monday.. According to HedgersEdge.com, the average beef plant margin for Monday was estimated at a negative $16.70/head vs. a negative $28.80/head a week ago. The average packer buy was estimated at $86.87/cwt with estimated breakeven at $85.54/cwt. USDA placed Monday’s slaughter at 126,000 head vs. 125,000 head a week ago. Cash sellers should consider pricing some cattle on the rally. Cattle prices could go higher on lower supply.

FEEDER CATTLE at the CME closed up on Monday. The APR’08FC contract finished at $99.000/cwt, up $0.40/cwt but $0.30/cwt lower than a week ago. MAY’08FC futures were up $0.825/cwt at $101.925/cwt and $0.70/cwt higher than last Monday. Gains were made on corn losses and news that cash cattle might be bid up later in the week on shorter feeder supplies. Overhead resistance was encountered in early trading on sliding feeder prices and thinking that feed prices were going to take off again. Corn lost near the close helping to prop up prices late in the day. The CME Feeder Cattle Index for April 3 was placed at $98.72/cwt, off $0.13/cwt. It might be a good idea to hold off sales if adequate corn inputs were bought when corn was down or you’re grazing pasture instead of high priced wheat. Feeders just might rally somewhat indicating we have come through a bottom in prices

LEAN HOGS on the CME were mixed on Monday amid some short covering and profit taking. APR’08LH futures (which expires next Monday) were lightly traded and down $0.375/cwt at $58.900/cwt but $1.825/cwt higher than last Monday. The MAY’08LH contract closed at $70.200/cwt, off $0.800/cwt but $3.900/cwt higher than a week ago. Cash hogs were steady to higher on Monday amid good supplies. USDA reported last month there were ample supplies with 7% more hogs on U.S. farms, a record large supply for this time of year. On the other hand, two floor sources said they expected them to go up during the week. Spring grilling weather is expected to help demand. According to HedgersEdge.com, the average packer margin for April 7 was estimated at $5.15/head as packers paid on average $40.18/cwt with a breakeven of $42.13/cwt. Far months found support on estimations that herd liquidation will continue to trim numbers into early 2009. USDA on Friday put the pork cutout margin at $59.19/cwt, up $0.82/cwt. The CME Lean Hog Index was placed at $54.39/cwt, up $0.05/cwt. It is a good idea to sell market ready hogs.

CORN on the Chicago Board of Trade (CBOT) closed down on Monday amid late session profit taking. The MAY’08 contract finished at $5.900/bu, down 8.0¢/bu but 19.6¢/bu higher than this time last week. The DEC’08 contract closed off 5.4¢/bu at $6.032/bu but 18.2¢/bu over a week ago. Declining wheat values weighed on corn all day. However, weather making it too wet to plant in many places was seen as supportive. Upticks in crude oil and gold also lent support. Corn inspected for export was reported by USDA today at 48.532 mi bu vs. expectations for between 40-45 mi bu. Cash corn in the U.S. Midwest was steady to firm while corn was 1¢/bu -2¢/bu lower in the U.S. Mid-Atlantic states. CFTC Commitment of Traders report showed funds growing bull positions by 400 lots to 146,577 contracts. It would be a very good idea to hold off selling anymore of the 2008 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down on Monday amid long liquidation. The MAY’08 contract finished at $12.550/bu, down 22.0¢/bu but 57.8¢/bu higher than last Monday. The NOV’08 soybean contract ended at $12.150/bu, off 8.6¢/bu but a whopping $1.256/bu higher than last Monday’s close. This contract gained 11.5% in a week. Index fund rolling was gearing up. A drop in wheat prices didn’t help soybeans either. U.S. soybeans were more evident in global markets due to recent strikes in South America even though USDA reported soybeans-inspected-for-export at 12.293 mi bu vs. estimates for between 20-25 mi bu. Cash soybeans in the U.S. Midwest were steady to firm with cash beans in the U.S. Mid-Atlantic states surging 20¢/bu-30¢/bu in many places. The CFTC Commitment of Traders report showed funds in bullish positions decreasing by as much as 14,300 lots as of April 1. The chart shows a very clear head shoulders formation but could go in either direction due to buy-only fund influence. A 14-day Relative Strength Index (RSI) of 49.43 in the November contract was supportive. A contract is said to be overbought at an RSI of 70 or above or oversold at an RSI of 30 or below. The measuring objective of $8.52/bu was not reached but that doesn’t mean that this contract has changed fundamental price direction toward the upside. Fundamentals still could take this contract lower if planting intentions continue to hold. The wet weather for corn plantings has begun a weather market. You should be in a pretty good position if you are 40% sold in the cash market.

WHEAT futures in Chicago (CBOT) were down amid profit taking on Monday after making strong gains last Friday. MAY’08 futures closed at $9.212/bu, off 53.0¢/bu and 7.8¢/bu lower than a week ago. The JULY’08 contract closed at $9.344/bu, down 57.0¢/bu but only 2.6¢/bu less than last Monday’s close. Short covering was the game amid tight old-crop stocks. Wheat inspected-for-export on Monday was placed at 23.933 mi bu by USDA. This was more than the expected 16-21 mi bu. Trading margins were lowered in Minneapolis after Monday’s close. Kazakhstan was reported thinking about restricting grain exports from that country in a turnabout from earlier statements. India’s wheat production forecast remained unchanged at 74.81 mi tonnes (2.75 bi bu). Romania and Germany reported increased wheat crop production numbers and a return to wheat exports. The CFTC Commitment of Traders report had funds increasing bull positions by 400 lots to 3,833 contracts. Cash wheat prices in the U.S. Mid-Atlantic states were very good ranging from 35.0¢/bu -42.0¢/bu higher. As stated last week, “There is still a world shortage of wheat. It is a good idea to hold off pricing any more at this time.”