10 September 2008

6 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were up on Monday. OCT’08LC futures were up $0.100/cwt at $103.050/cwt; $2.750/cwt lower than week before last. The DEC’08LC contract closed at $104.950/cwt, even with Monday before last. Short covering and October/December spreading was noted after bear spreads came apart. The U.S. stock market was encouraged with new buying confidence as the U.S. government announced it was buying out Fannie Mae and Freddie Mac. This provided buying dollars for large index funds that hold mortgage portfolios. They bought futures today as a result. Beef exports were supportive. USDA placed the 5-area priced for Monday, September 08, 2008 at $98.54- $98.78/cwt. This was about even with cash prices two weeks ago. According to HedgersEdge.com, the estimated average packer margin was off $0.85/head from two weeks ago placed at a positive $3.95/head based on the average buy of $98.38/cwt vs. a breakeven of $98.68/cwt. Sliding corn prices were supportive and it looks like feed costs will continue to experience downward pressure. Soybeans remain very volatile because the crop is not far enough along to weather an early frost. It is a good idea to price short term feed needs on weakness developing in the corn market. However, don’t get too much priced as I believe corn has more downside potential as we approach harvest.

FEEDER CATTLE at the CME closed up on Monday with the exception of the March ’09 contract. That contract was near even. The SEPT’08 contract finished the day at $111.300/cwt, up $0.175/cwt from Friday’s close but $1.600/cwt lower than Monday-before-last. Follow-through buying from Friday and discounts to the CME Feeder Cattle index were supportive. The latest CME Feeder Cattle index was placed at $111.98/cwt, up $0.33/cwt. The feed markets are still volatile and I expect corn prices to continue lower unless there is some kind of fundamental shift e.g. an early frost or a flooding hurricane.

LEAN HOGS on the CME closed solidly down on Monday. The OCT’08LH contract closed at $68.850/cwt, off $0.575/cwt and $5.150/cwt (7%) lower than two weeks ago. DEC’08 futures closed down $0.725/cwt at $67.450/cwt; down $6.800/cwt (9.6%) over two weeks. The FEB’09 contract closed off $0.875/cwt at $75.250/cwt; $4.800/cwt (6.0%) lower than Monday before last. Hang on! Traders in Chicago told me today they think that the herd liquidation will come in line now. The Goldman-Sachs roll was noted as funds shifted October longs into December. This put downward pressure on prices. Monday was the first of five days for the Goldman roll period and is done in conjunction with the S&P and GSCI rolls. Many contracts were in or near oversold territory. A contract is said to be oversold at a Relative Strength Index (RSI) of 30 or below. Packers did not help by offering lower cash prices through midday and are expected to keep it up through the rest of the week as they try to preserve melting profit margins. Russia is rumored to be thinking about slowing or even stopping imports of U.S. pork shipped above the tariff quota next year. Their saying it is because they want to preserve prices for Russian farmers. Could a little trouble in a place named Georgia be part of the reason? Mexico stopped exports to the U.S. because of questionable clean-conditions at several plants. The latest CME Lean Hog index was placed at $74.16/cwt, down $1.73/cwt. USDA put the pork carcass cutout at $77.27/cwt; up $0.07/cwt. The latest packer margin was lowered $4.45/head from Monday-before-last to $3.30/head based on the average buy of $54.02/cwt vs. an average breakeven of $55.30/cwt, according to HedgersEdge.com. It is a very good idea now to push hogs off the feeding floor when ready. Look for feed grain markets to provide some relief as the week goes on.

CORN futures on the Chicago Board of Trade (CBOT) finished up Monday on a technical bounce. The SEPT’08 contract finished at $5.330/bu, up 1.4¢/bu from Friday but 47.2¢/bu cents lower than Monday before last. The DEC’08 contract closed at $5.490/bu, up 0.4¢/bu from Friday but 51.0¢/bu lower than this time two weeks ago. Rallying soybean prices provided some support. Weather was not much of a market mover … yet. Thoughts of early frost haven’t quite diminished buying enthusiasm while Hurricane Ike spins memories of what excess rain can do. However, Ike is not thought to be much of a threat. USDA placed corn-inspectedfor- export at 15.792 mi bu vs. expectations for between 30-35 mi bu. USDA put the US corn crop at 11% mature compared to 6% last week, 38% mature this time last year, and a 5-year maturity average of 28% for this time of year. USDA put the good-to-excellent condition at 61%; the same as last week. Market expectations were that crop conditions would decline. This will put downward pressure on prices the rest of the week. Cash corn in the U.S. cornbelt and the U.S. Mid-Atlantic states was steady with a strengthening basis. Funds were net even with large speculators decreasing net bull positions in options and futures by 4,000 lots to 58,388 contracts. Those who have up to 70% of the ’08 crop priced today are in good shape. Hopefully up to 20% of the ’09 crop has been sold. Unless severe weather or some other surprise comes along, the market sources tell me that they expect to trade this market down as harvest approaches.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were up on Monday. The SEP’08 contract finished at $11.944/bu, up 14.4¢/bu from Friday’s close. NOV’08 soybean futures closed at $11.920/bu, up 15.5¢/bu but $1.550/bu lower than two weeks ago. Technical trading was supportive while weather was not a major factor. Floor sources said today that the threat of an early frost hung over the market supporting prices. USDA placed soybeans-inspected-for-export at 1.407 mi bu; well below the expected 6-11 mi bu. The goodto- excellent crop condition remained the same as last week at 57%. Many traders expected USDA to lower the crop condition report for soybeans. Soybean rust was found in a field of soybeans near Arkansas. This is the farthest north it has been found in 2008. However, this news is not as volatile as it once would have been. Cash soybeans were steady on light shipments because of the threat of Hurricane Ike (no one wants to send ships toward the gulf down the river). Funds were net buyers of 3,000 lots while large speculators increased net bull positions by 929 lots to 41,747 contracts. It is good to consider staying at 60%-70% sold in the ‘08 crop. It might be a good idea to get up to 20% of the ’09 crop priced if that wasn’t done two weeks ago.

WHEAT futures in Chicago (CBOT) closed down on Monday. The SEPT’08 contract closed at $7.226/bu, off 7.0¢/bu from Friday and $1.176/bu lower than week before last. JULY’09 wheat futures closed off 9.2¢/bu at $7.924/bu; $1.19/bu lower than two weeks ago. The wheat market traded lower than it has in a year on chart-based selling, lots of world wheat supplies, and long liquidation. Sinking crude oil prices and a stronger U.S. dollar limiting exports were not helpful. USDA placed wheat-inspected-for-export at 21.407 mi bu; within estimates between 20-25 mi bu. France reported its wheat crop in very good condition and yielding high. Australian wheat was getting much needed rain while Romania reported very, very good yields over expectations. Cash bids for wheat were weaker on Monday amid light farmer selling across the U.S. Funds sold about 2,000 contracts while large speculators increased net bear positions in CBOT wheat by 11,400 lots to 25,555 contracts. Index funds holding large bull positions sold 7,400 contracts to 171,890 lots. It now may be a good idea to price up to 60% of the ’09 crop if you haven’t done so at a higher level.