30 April 2008

7 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were gainers on Monday with the exception of the August ’08 contract. The APR’08LC contract closed at $92.400/cwt, up $0.125/cwt and $2.375/cwt higher than a week ago. JUNE’08LC futures were up $0.375/cwt from Friday’s close at $93.750/cwt and $1.800/cwt higher than last week at this time. Profit taking weighed on prices while spreading in June/August and August/October were noted. The herd has been trimmed and demand is strengthening. Packer margins remained profitable at an estimated positive $61.90/head vs. a positive $78.25/head last Monday, according to HedgersEdge.com. Packers were reported buying for $90.99/cwt vs. an estimated breakeven buy at $96.00/cwt. Cash cattle were steady to higher trading at $92/cwt, up $2/cwt. USDA put the 5-area price at $92.11/cwt. Cattle in the U.S. Plains were up as much as $3-$4/cwt. Export was looking up. In export news, South Korea is ready to start taking more bone-in beef from animals under 30 months of age. USDA put Friday’s choice beef at $154.87/cwt, down $0.40/cwt. This market looks like it may have bottomed out. Cash sellers should consider holding cattle to the end of the week. Corn inputs should be not be priced yet.

FEEDER CATTLE at the CME closed down amid increasing corn prices and technical selling on Monday. The May’08FC contract finished at $106.725/cwt, off $1.025/cwt. AUG’08FC futures were off $1.475/cwt at $109.175/cwt. Spiking corn futures to record highs hurt feeders on Monday. Increasing corn prices will hurt most when the grass is scarce later on in the colder months. August took the most pressure because May cattle can still find grass. Demand remains good for heavier feeders. The Oklahoma City auction shows cash feeders up $1-$3/cwt on top of gains last week to $4/cwt. The CME Feeder Cattle Index for April 24 was placed at $101.87/cwt, up $0.18/cwt. August feeders may rally later depending upon pasture conditions. Hopefully nearby corn inputs were priced on earlier profit taking days ago.

LEAN HOGS on the CME were off on Monday. The MAY’08LH contract closed at $75.75/cwt, off $0.325/cwt; $3.075/cwt higher than last week and $6.145/cwt higher than two weeks ago. JUNE’08LH futures were up $0.900/cwt closing at $75.45/cwt and $2.475/cwt higher than last Monday. Cash hogs were supportive while profit taking, and the premium of futures to the latest CME Lean Hog Index pressured prices. The beginning of the Goldman-Sachs Roll weighed on the nearby while supporting later months. The role began today and will go on for another 4 days with active spreading in July/June and August/June. The Goldman-Sachs roll occurs when positions in the nearby month are rolled into the next contract months. Spreading between October/December futures was noted. Open interest set a record on Friday with 248,412 contracts. USDA on Friday put the pork cutout value at $73.41/cwt, up $1.20/cwt. Packers were seen as cutting back because futures gains have outpaced cash prices. USDA placed Monday’s estimated hog slaughter at 414,000 head compared to 429,000 last week and 397,000 last year at this time. According to HedgersEdge.com, the estimated average packer margin was placed at a negative $1.30/head based on the average buy of $53.12/cwt vs. a breakeven $52.65/cwt. It might be a good idea to keep market hogs sold as soon as they are ready. Pricing near term corn inputs can be put off while it might be a good idea to get some soybeans and soybean meal priced the first of this week.

CORN on the Chicago Board of Trade (CBOT) closed up on Monday amid more wet weather reports that may hamper corn seedings. The July’08 contract set a record corn price of $6.51/bu. The MAY’08 contract finished at $6.00/bu, up 22.6¢/bu and 19.8¢/bu higher a week ago. The DEC’08 contract set a fresh high closing up 23.4¢/bu at $6.302/bu and 25.2¢/bu higher than last Monday. Wet weather, record crude prices, and heavy volume were supportive. Funds bought over 10,000 contracts on Monday. Most funds are long in the market with over 80% of their high-risk portfolios in energy and about 11%-12% in commodities such as corn, soybeans, or wheat. These funds have to balance the books at the end of month. That means when money comes in from energy (crude) they need to invest it in the same ratio in grain and livestock commodities. Crude went up … so the funds went on a buying spree. Many folks in the Mid-Atlantic States say they are just about to give up on planting corn. They are hoping they can find soybean seed. USDA placed the U.S. corn crop at 10% planted vs. a five-year average of 35% by this time of year. The market was working on estimates of between 15%-19% planted. U.S. corn-inspected-for-export was placed at 34.939 mi bu vs. estimates for between 35-40 mi bu. As the livestock sector struggles with high feed costs, cash corn in the U.S. Midwest was steady to firm. Cash corn in the U.S. Mid-Atlantic States was $5.55/bu-$6.05/bu for old crop and $5.95/bu-$6.15/bu for new crop. Even though Monday was a high-volume day, the supplement to the CFTC Commitment of Traders report had funds cutting bullish positions in CBOT corn by 11,000 contracts from 185,851 lots. It is a good idea to price up to 60% of the ’08 crop this week. Market volatility is offering a good opportunity to price more corn. Corn futures are overpriced at this time so profit taking can be expected most likely by mid-to-late in the week. However, there is fundamental support for U.S. corn so upside potential remains a very good possibility.

SOYBEAN futures on the Chicago Board of Trade (CBOT) declined on Monday on wet weather and speculative thinking that acres that should be planted to corn will now grow soybeans. Over two hundred farmers in the U.S. Mid-Atlantic States asked about planting intentions over the past few days. Eighty-one percent said they will plant soybeans in lieu of corn if they can find the seed. Local soybean seed prices are over $40.00/bag. One could book seed last fall for $33.00/bag. It is also reported that if soybean seed that can be found is rated only at a 75% germination rate vs. an 85% germination rate. This will contribute to higher soybean input prices because seedings will have to be increased to get the same amount of yield. The MAY’08 contract finished at $12.834/bu, off 32.0¢/bu from last week, 74.2¢/bu lower than two weeks ago, and down $1.312/bu lower from three weeks ago. The NOV’08 soybean contract ended at $11.964/bu, off 25.4¢/bu and 39.0¢/bu lower than last Monday’s close. USDA on Monday placed soybeans-inspected-forexport at 14.237 mi bu vs. expectations for between 16-22 mi bu. Wet weather and the announcement that soybean yields are lower than expected in Argentina were supportive. News that the Argentina government may have averted a new round of farmer strikes also put pressure on prices. Cash soybeans in the U.S. Midwest were steady to firm while those in the U.S. Mid-Atlantic States opened weaker on Monday. Funds sold 4,000 lots while the CFTC Commitment of Traders report showed bullish funds increasing positions by over 5,000 contracts to 85,300 lots. Hopefully up to 40% of the ’08 crop has been priced and 10% of the ’09 crop was priced.

WHEAT futures in Chicago (CBOT) rebounded on Monday. The MAY’08 contract closed at $8.260/bu, up 25.4¢/bu from last Friday’s close but 19.0¢/bu lower than a week ago. The JULY’08 contract closed at $8.410/bu, also up 25.4¢/bu but 18.4¢/bu lower than last Monday. Short covering and surging corn were supportive while the possibility of a large U.S. and world wheat crop put the pressure on. Late Monday USDA put the U.S. winter wheat crop rating at 46% good-to-excellent and 15% headed. This was 1% better than last week at this time but less than what traders expected. U.S. wheat inspected-for-export was placed at 18.923 mi bu, vs. expectations for between 15-20 mi bu. Iraq tendered an offer for up to 50,000 tonnes (1.84 mi bu). Egypt was rumored to be looking for 1 mi tonnes (36.7 mi bu) of French wheat. The supplement to the CFTC Commitment of Traders report from last Friday had funds in net bearish positions cutting them by 243 contracts to 2,500 lots. Volume was not impressive. Hopefully the crop was priced at 50% on previous advice. If not, it might be a good idea to price more on this rally.