Weekly Roberts Report

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

LEAN HOGS on the CME ended higher with the JUNE’06LH contract at $70.125/cwt, up $0.725/cwt and the JULY’06LH futures ended up $1.275/cwt at $70.175/cwt. The AUG’06LH contract closed at $68.825/cwt, up $1.275/cwt. Cash gains, short coverings, buy stops, and fund buying driving the June and July to highs not seen in several months with remaining deferreds showing fresh contract highs. Monday’s higher cash hog prices in Iowa helped to drive futures higher in active trading amid advances. Both funds and locals bought JULY’06LH futures, floor sources said.

USDA reported on Monday the cutout value up $0.57/cwt at $69.23/cwt. The latest CME lean hog index was down $0.52/cwt closing at $66.54/cwt. Demand remained strong despite negative plant margins on Monday. The average margin improved $0.05/head to $1.30/head according to HedgersEdge.com. Gains in hogs were attributed somewhat to expectations of hotter weather lowering slaughter weights and hurting conception rates generally limiting inventory though the summer. Pork exports continue to be brisk. Cash sellers should consider carrying all risk in cash sales at this time. Hedgers should be off positions with a watchful eye to reestablish protective positions on 3rd quarter sales.

CORN on the CBOT for the July’06 futures closed down 6.4¢/bu at $2.53/bu and was 0.14¢/bu lower (slightly) than last week at this time. The DEC’06 contract closed at $2.786/bu, down 6.2¢/bu from Friday’s close and down 0.01¢/bu from the close last Tuesday. Last Friday, corn futures were up as forecasts for hot and dry weather made the rounds fueling this typical weather market. Monday’s close was sharply lower than last Friday’s close amid fund selling and abating worries over weather for the Midwestern corn crop. It was reported that nearly the entire 2007 corn crop has been planted and is up and growing.

USDA reported more than 71% of the U.S. corn crop in good to excellent condition compared to a 62% good-to-excellent rating this time last year. Corn in the lower-producing Mid-Atlantic states needs moisture with many corn-growing areas reporting corn only 60%-62% good to excellent. Most sources are in agreement that weather forecasts as a whole are bearish for corn at this time. Volume was estimated at 142,410 futures contracts and 178,543 options. Funds sold 8,000 lots … almost twice as much as they bought last Friday. Selling on Monday was seen as connected to fund profit taking and long liquidation. Cash corn bid steady in the Midwest while East Coast cash offers were strongly higher amid strengthening local basis.

The CFTC’s Commitments of Traders report on Friday had funds expanding net long positions in CBOT futures and options by 4,333 lost to 267,950 contracts as of May 30. Cash sellers priced up to 40%-50% of new crop corn are in good shape and should be patient. Same goes for hedgers. Both hedgers and cash sellers could consider a contract on up to 20 – 25% of the DEC’07 crop at these prices. Since this market may still have some downside potential, selling a DEC’06 $3.50/bu call option for 9.2¢/bu may be one more thing to consider. Be aware of margin calls in this volatile market.

SOYBEANS futures on the Chicago Board of Trade (CBOT) finished down through all months with the JULY’06 contract closing down 5.6¢/bu at $6.032/bu but up 19.8¢/bu from last Tuesday’s close at $5.834/bu. NOV’06 soybean futures ended at $6.290/bu, off 4.2¢/bu from Friday but up a whopping 20.4¢/bu from the same time last Tuesday! All technical signs show a lower finish than this should have happened for soybeans as the market enjoyed an outside day. Resistance in the NOV’06 contract is set at $6.39/bu. Resistance in JULY’06 bean futures is placed at $6.11/bu after pushing through resistance of $6.106/bu.

Weather news was bearish on a market already burdened with huge supplies. USDA was expected to show the U.S. soybean crop as 90% - 95% seeded to date with initial crop ratings showing good to excellent condition. The U.S. crop was rated 62%-65% good-to-excellent this time last year. Nothing was unexpected in exports as 9.2 million bushels were inspected within estimates of 6 – 11 million bushels. Cash beans showed weaker in the middle of the U.S. on Monday amid sluggish farmer selling. Opening cash bids for soybeans in the Middle Atlantic area showed strengthening basis with soybeans 20¢/bu– 22¢/bu higher in most places for both new and old crop beans. Lots of ethanol and bio-diesel talk going around in the East.

The CFTC’s Commitments of Traders report show funds selling some 2,000 – 3,000 contracts increasing net SHORT positions in CBOT soybean futures and options combined for the week ended May 30. Cash sellers calling to ask, “What should I do with those beans still in the bin?” should know that now is a very, very good opportunity to get them out and do some spring bin cleaning! Please don’t be one of those calling me in September of 2006 asking what to do with 2005 soybeans! Both cash growers and hedgers should have considered selling up to 50% of new crop beans for several weeks now. If not at these levels it is strongly recommended to get there on this rally. Since this market shows strong downside potential, selling a NOV’06 $7.00/bu call option for 22.2¢/bu may also be considered. Be aware of margin calls in this volatile market. Users of soybeans should have all risk in the market.

WHEAT in Chicago for JULY’06 wheat closed 5.2¢/bu lower at $3.984/bu. This was 14¢/bu lower than last Tuesday’s close and 28¢/bu lower than two weeks ago. All deferred months on the CBOT were lower with JULY’06 wheat (closing at $4.954/bu) and the DEC’06 wheat contract (finishing at $5.114/bu) showing modest gains in Kansas City (KCBT). Funds sold between 1,000 and 2,000 lots. Early reports from the Kansas Association of Wheat Growers sees U.S. hard red winter wheat (HRW) gaining more crop acres in that region with good quality but varying yields ranging from 15 bu/ac to 30 bu/acre.

USDA reported exports within the range of 15 – 20 million bushel estimates at 18.7 million bu. India showed to make another major offer within the next one or two weeks after buying only 800,000 tonnes (29.4 million bu) of its initial offer for 3 million tonnes (110.2 million bu). India agreed to relax import rules after barriers held of bidders last week. It is reported that Australia is close to a deal for 500,000 tonnes (1.8 million bu) to India. Drought concerns in Australia’s wheat producing country are seen as underpinning the market. Lack of rain there is holding up planting.

The CFTC’s Commitments of Traders report on Friday showed as of May 30 funds grew net long positions in CBOT wheat futures and options combined. Cash sellers should have seriously considered pricing up to 50% of the ’06 crop with a combination of forward Cash and Hedge-to-Arrive contracts. Hedgers should have 50% of the ’06 crop and up to 15% - 25% of the ’07 crop protected.

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