Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 11 May 2006
clock icon 7 minute read

LEAN HOGS on the CME ended higher on Monday with the JUNE’06LH contract at $66.65/cwt, up $0.275/cwt and the JULY’06LH up $0.025/cwt at $67.075/cwt amid spillover from the beef markets and ideas that cash markets may be stronger longer, traders said. Cash markets are holding even though they should be tending lower in seasonal drift by now. This provided balance to the bears early on. The JUlY’06LH contract traded above the 100-day moving average for a time. Cash hogs were called steady to firm on Tuesday, but prices could ease later in the week if packers fill up early on carcass needs or prices top out. The composite pork cutout value was its highest since October, 2005 on Friday at $69.05/cwt, up $0.44/cwt. Hedgers should be out of all short positions. Cash sellers should keep sales as current as possible pushing weights to the limit.

Profit-taking in gold markets weighed on the grains and soybean markets early as gold backs off a new high in a setback. As discussed last week … the gold, silver, and crude markets affect the grains and other commodity markets now and we see those markets backing off as well.

CORN on the CBOT for the MAY’06 and most deferreds opened down 2.2¢/bu - 3¢/bu with the MAY’06 opening at $2.28/bu, down 2.6¢/bu and the DEC’06 contract opening at $2.604/bu, down 3.6¢/bu. The MAY’06 futures closed at $2.272/bu, off 3.4¢/bu from the previous close. The DEC’06 contract closed at $2.614/bu, off 2.4¢/bu. Last Friday corn ended bullish on overflow buying from wheat markets but traded lower today partly on news that the $0.54/gal import tariff on imported ethanol may be eliminated. Good crop planting progress and pressure from gold and energy markets over the weekend swarmed the market. The South America corn harvest is only mildly delayed by wet weather. The USDA report due late Monday for U.S. corn plantings is expected to be set at 75% - 80% complete.

Export news was routine at 37.5 million bushels inspected last week. The market is watching to see if China will respond to a recently delivered shipment (100 tonnes) of genetically modified corn with more orders. Israel tendered an offer for 60,000 tonnes (2.36 million bu) of corn with the likely seller being the U.S. Deliveries on the May contract were heavy at times amid some stopping of corn, showing 2,569 lots (12.85 million bushels) delivered. Funds sold 11,000 lots (55 million bushels). Registrations on the CBOT remained unchanged at 2,951 lots (14.8 million bu). Friday’s CFTC Commitments of Traders report for futures and options combined showed as of last Tuesday, long funds were up 8,213 contracts from the previous 284,168 lots. Funds in short positions were up 5,198 at 76,579 lots. Basis bids for corn were mixed on Monday amid quiet sales numbers.

The DEC’06 chart looks as though a major top has been cleared, however, the market seems to have factored the fundamentals in so now is not the time to get too excited. The gap established in today’s trading looks like a “Pattern Gap.” This is a gap that is established within the trading range. The market comes back to fill these kinds of gaps rather quickly in most cases meaning there may be movement to the upside in the next few days. Therefore, advice to cash sellers is still the same as last week. Those who haven’t forward priced much of the new crop should consider pricing up to 40%-50% of new crop corn. The same ’06 crop recommendations hold true for hedgers. Hedges against the DEC’07 crop may also be considered now at the 20%-25% level. If you are at these position sit tight for now while the market makes up its mind about a breakout to downside or not.

SOYBEANS futures at the Chicago Board of Trade (CBOT) finished down Monday with the MAY’06 contract down 8.4¢/bu at $5.860/bu. NOV’06 soybean futures ended the day at $6.176/bu, down 7.4¢/bu. Profit taking triggered by surging wheat futures set the market tone. Soybean contracts on the nearby and deferreds all gapped lower on the open triggered by profit taking from last week’s rally. A good start to this year’s U.S. crop and large supplies still loom over the market. USDA is expected to show U.S. bean plantings 25% - 30% complete. Exports were placed at 9.4 million bushels, well within estimates placed at 8 – 13 million bushels.

Buyers continue to snap up fresh beans from South America even though sellers there are reluctant to sell since a strong dollar reduces the value of their soybeans. Deliveries on the May contract were significant at 1,302 lots amid scattered stopping of soybeans. Spot basis was scattered for cash beans. Funds sold 2,500 to 3,000 lots as the CFTC report dated last Friday showed funds notably reducing net short positions in CBOT bean futures and options combined. Cash sellers not forward priced at 50% of the 2006 crop should consider getting there. Hedgers should consider being at or near 40% - 50% of new crop beans. Hedges on up to 40%-50% of the new crop should be considered.

WHEAT in Chicago for MAY’06 wheat futures closed 1.6¢/bu higher at $3.630/bu. The JULY\’06 contract closed higher 3.6¢/bu at $3.760bu. Both contracts, along with deferreds finished Monday about 10¢/bu higher than last week at this time. The market surged on concerns about the condition of the U.S. HRW crop, traders said. Floor sources said they did not want to go home short amid concerns about the crop condition report in case “we see another decline in crop conditions. Wheat Quality Council Scouts on the Kansas tour last week projected the U.S. wheat crop in Kansas at 319 million bushels, down from last year’s 380 million bushel actual production.

Analysts were showing the 2006 U.S. wheat crop in the 1.3 billion bushel level, down from 1.5 billion bushels last year. USDA will issue its first estimates of the 2006 wheat crop on Friday. USDA lowered the U.S. winter wheat crop good-to-excellent condition by 1% to 35%. Some rain was noted but was considered too late to do much good for the crop. The spring wheat crop is showing 57% planted as of Sunday. This is below trade estimates of 60% - 65% last week. The USDA’s inspections report was less than hoped for at 11.4 million bushels, down from the 15-20 million estimated to be shipped. Export news indicating that India is set to tender an offer for 3 million tonnes (110 million bushels) was seen as bullish.

Due to the size of the tender, traders see Australia as the likely supplier with the U.S. getting some share of the business. Overnight news shows Jordan tendering an offer for 120,000 tonnes (4.4 million bushels) of U.S. wheat. Friday’s CFTC Commitments of Traders report showed funds reducing net short positions in CBOT wheat futures and options combined but remaining heavily bullish in both the Kansas City and Minneapolis wheat markets. Cash sellers should consider pricing at least 50% of the ’06 crop. Producer hedgers in CBOT wheat should not have any short positions in place at this time.

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