Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 15 June 2006
clock icon 8 minute read

LEAN HOGS on the CME ended higher with the JUNE’06LH posting a contract high of $73.525/cwt, up $0.575/cwt. JULY’06LH futures ended up $0.175/cwt at $70.875/cwt. The AUG’06LH contract closed at $69.250/cwt, off $0.225/cwt, up $0.425/cwt from one week ago. The JUNE’06LH contract expires on Wednesday and was run up with support from good cash hog prices as Midwest terminal suppliers kept marketings current pushing selling weights lighter. Also supporting the JULY’06LH contract was its discount to the cash market ahead of it becoming the spot month.

Pork exports remained strong as USDA raises its 2006 export estimates by 180 million pounds. Packers are seen as cutting back on slaughter pace due to current tight hog supplies and negative margins. Some floor sources think that prices will be weighed down by improving hog supplies and the seasonal decline in domestic demand. USDA placed the kill on Monday at 346.000 head vs. 384.000 head one week ago and 373,000 head one year ago.

Last Friday USDA reported the pork cutout up $0.91/cwt at $74.41/cwt, the highest since Aug. 30 last year. The average pork packer cutout margin for Monday was a negative $2.85/cwt, up $0.85/cwt from a negative $3.60/cwt on Friday but down from a negative $1.25/cwt one week ago, according to HedgersEdge.com. The CME lean hog index price was up $1.18/cwt at $69.38/cwt. Cash sellers should consider carrying all risk in cash sales but be ready to protect 3rd & 4th quarter marketings at this time. Likewise, hedgers should be off positions with a watchful eye to reestablish protective positions on 3rd & 4th quarter sales.

As of the last Friday, the USDA World Supply/Demand report decreased U.S. ending stocks for corn, increased soybean ending stocks, and kept wheat unchanged. Corn ending stocks were lowered for both marketing years by 50 million bushels to 2.176 billion bushels for last year and 1.091 billion bushels for the ‘06/’07 marketing year. Soybean ending stocks were up 5 million bushels for both the last marketing year and the current one. Ending stocks for last year’s soybean crop were placed at 570 million bushels with ending stocks for the current marketing year at 655 million bushels. Wheat ending stocks for the last marketing year remained unchanged while being reduced 31 million bushels for the current marketing year to 416 million bushels.

Farm price for the 2006/’07 crop for each commodity is now estimated by USDA to be as follows:

  • CORN - $2.25/bu - $2.65/bu
  • SOYBEANS - $5.10/bu - $6.10/bu
  • WHEAT - $3.60/bu - $4.20/bu

CORN on the CBOT for the July’06 futures gapped up 6¢/bu in opening trade on Monday closing up 9¢/bu at $2.51/bu. This was off just 1¢/bu from last week at this time. The DEC’06 contract opened up 6.8¢/bu, climbed 7.2¢/bu to $2.75/bu by noon then closed up 5.4¢/bu at $2.732/bu. However, this was 5.2¢/bu below last Monday’s close. The market gapped rallying on concerns of hot, dry weather forecasts for the Midwest Corn Belt later this week. Also providing bullish support were: a) China’s crop conditions showing stress due to drought, b) lower USDA World S/D estimates last week, c) expectations of increased ethanol consumption, and d) increased export expectations. Trading volume was heavy with funds buying 3,000 lots by noon.

Floor sources expect the USDA report issued late on Monday to show corn crop condition ratings of good to excellent nearly unchanged at 71 percent. Exports were seen as having little effect on the market with South Korea expected to tender an offer this week for September arrival even though the Japanese are not expected to order any more corn since their July-September shipments have been covered. USDA said 39,958 million bushels (compared to estimates of 42 – 46 million bushels) of corn were inspected for export. Midwest cash corn bids were steady to firm amid slow farmer sales.

Mid Atlantic buyer bins show full as corn cash bids were called 4¢/bu cents – 5¢/bu lower on Monday after closing 11¢/bu lower last Friday. The CFTC’s Commitments of Traders report late Friday showed funds to be holding huge net-long positions in futures and options at 262,930 contracts despite selling off 5,020 lots. Cash sellers that priced up to 40%-50% of new crop corn are in good shape and should remain patient. Same goes for hedgers. Both hedgers and cash sellers could consider pricing up to 20 – 25% of the DEC’07 crop at these levels.

SOYBEANS futures on the Chicago Board of Trade (CBOT) finished sharply higher following bullish overnight trading trends on the same hot, dry weather concerns supporting the corn market. The JULY’06 contract opened 10.4¢/bu higher, ran to a whopping 16¢/bu higher by noon and closed up 14.2¢/bu at $6.000/bu. This close was 3.2¢/bu lower than the same time last week. The NOV’06 contract finished up 13.4¢/bu at $6.290/bu, even with last week’s close. Providing additional support were expectations that Tropical Storm Alberto could spread soybean rust disease and an expected rebound from recent declines.

USDA is expected to show late on Monday that the soybean crop condition ratings are unchanged to slightly down 2 points to a 68% good to excellent crop rating. Export inspection numbers did not meet trader’s expectations as 7.9 million bushels (below the expected 8 – 12 million bushels) were inspected. Japanese users are seen likely to fill most of their soybean needs from the U.S. for August since Brazilian soybean prices are too high and doubts that Brazil can not maintain uninterrupted supplies. The CFTC’s Commitments of Traders report late last Friday had funds cutting net short positions by 17,194 lots to 13,105 contracts, down from 30,899 short positions as of June 6. Cash soybean bids in the Midwest were seen as steady to a little bit higher early Monday in spite of the overnight rallies.

Having filled their bins early last week Mid Atlantic buyers were offering 1¢/bu to 3¢/bu lower prices from last Friday as of 1:00 p.m. Monday. Resistance in the NOV’06 contract is set at $6.353/bu. Resistance in JULY’06 bean futures is placed at $6.034/bu. These prices are showing too high with exports diminishing and USDA ending-stocks-estimates increasing. Up to this point, cash growers have been encouraged to have no old crop beans unsold and to consider selling up to 50% of new crop beans. Hedgers should have up to 50% of the crop protected. If not at these levels it is again strongly recommended to get there on this rally. Users of soybeans should have all risk in the market.

WHEAT in Chicago for JULY’06 wheat closed 1.3¢/bu up at $ 3.738/bu, $3.984/bu and 24¢/bu lower than last week at this time. This is seen as a technical rebound from the big sell-off last Friday. CBOT wheat futures were nearing technically oversold status at the close Friday with the 9-day RSI for JULY’06 wheat near 31. An RSI of 30 is considered oversold. In Kansas City (KCBT) JULY’06 wheat closed up 0.4¢/bu at $4.794/bu. Good yield expectations and harvest pressure weighed on the market as harvest picks up in Kansas and elsewhere. Funds bought 1,000 lots. Rallies in the corn and soybean markets were helpful.

Export numbers placed at 12.7 million bushels were disappointingly below estimates for 14 – 19 million bushels. Demand for U.S. wheat was seen as becoming a more significant pricing factor in the coming weeks as harvest progresses. Plantings in Argentina were up 1.7% from last year at 18.9% complete. Argentina wheat plantings are expected to increase by about 10% this year. USDA placed Argentina’s expected yield for ‘06/’07 to be near 14.3 million tons (525.5 million bushels). USDA expected Kansas wheat farmers alone to harvest 291.4 million bushels, down from May’s estimate of 319.6 million bushels. The CFTC’s Commitment of Traders report indicated funds trimmed net long positions in CBOT wheat last week.

Long funds on the CBOT were down 11,796 contracts from one week ago at 47,132 lots. Large speculator positions were mostly unchanged to slightly lower at the KCBT where longs were down 27 lots at 57,939 contracts and shorts down 299 lots at 4,389 contracts. Spot cash bids in the Midwest for U.S. HRW wheat were unchanged while those in the Mid Atlantic states fell by as much as 11¢/bu. 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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