Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 21 June 2006
clock icon 8 minute read

Showing more than ample supplies, soybean and grain futures decline while beef and pork move higher to start the trading day on Monday. This proves that current fundamentals will not support price rallies riding the momentum of fund activities. The slower pace of outside markets (energy and metals) shows what happens to commodity prices when the fundamentals won’t sustain higher price trends.

The markets are expected to continue these price patterns until the next USDA Grains Stocks Report due on June 30th that will give some sense of crop productivity. The USDA World Supply/Demand Report is due out July 12th and could be another market moving factor. Prices are expected to decline if normal or better yields are reported. Until then, the weather is the primary price determining factor unless something completely unexpected happens on the world stage.

LEAN HOGS on the CME closed sharply up on Monday with all trading months registering new contract highs fueled by fund buying, buy-stops, spreading, and sliding feed-input prices. Lean hog gains and weak hog supplies took care of initial profit taking losses. Higher cash hog prices on Monday caused by early packer buying followed extended gains. New highs were set in all but the MAY’07LH and the JULY’07LH contracts.

The JULY’06LH contract closed up $1.45/cwt at $76.925/cwt and the OCT’06LH contract finished at $63.425/cwt, up $1.50/cwt. Rising cash prices and good demand were supportive and overpowered an overbought condition in the market. Cash hogs traded $1.00/cwt higher or more on Monday amid tight packer supplies. USDA on Friday reported the pork cutout at $78.81/cwt, up $0.11/cwt and the highest level since May 2005.

The latest CME lean hog index was placed at $75.65/cwt, up $0.98/cwt. Cash sellers should still consider carrying all risk in cash sales remaining ready to protect 3rd & 4th quarter marketings. Likewise, hedgers should be off positions with a watchful eye to reestablish protective positions on 3rd & 4th quarter sales. Feed grain input pricing could be considered at this time.

CORN on the CBOT for the JULY’06 contract opened lower and remained there due to good weather over the weekend. JULY’06 futures closed off 5.6¢/bu at $2.296/bu. The JULY’06 contract was off 21.4¢/bu from last week at this time. The DEC’06 contract finished down 5.4¢/bu at $2.556/bu and 19.4¢/bu lower than last Monday’s close. All contracts were off a range of 2.4¢/bu- 6.2¢/bu except for the MAY’08 contract which finished 3.0¢/bu higher at $3.08/bu. Fund activity from last Friday provided some support at times on Monday. The market slid as sell-stops and profit taking by locals took hold at the finish.

Corn prices rallied on Friday over concerns of crop-stressing hot, dry weather but the market was setback on Monday amid crop-friendly weather forecasts of more moisture and lower temperatures, according to one floor source. The fundamentals are showing a tendency to correct the market amid spillover weakness from outside markets and sliding soybean prices. Traders who were interviewed noted that the next USDA crop-condition report should show U.S. corn conditions down 1% - 2% from the previous week. Good export demand for U.S. corn remains helpful as USDA reported 47.1 million bushels were inspected for export last week.

This was within estimates of 43-48 million bushels. Export sales of 319,200 tonnes (12.6 million bu) were finalized to Japan and another buyer on Monday. China’s thirst for energy sources is fueling market demand for corn based ethanol. One Senior Chinese official said that this factor alone could boost corn consumption by one-quarter by 2010. Midwest and MidAtlantic cash corn bids were steady to stronger early Monday as dealers tried to encourage more farmer sales. The CFTC Commitments of Traders report last Friday showed funds cutting net long positions in CBOT corn futures and options combined for the week ended June 13 to 294,504 lots, down 30,501 from last week.

Funds holding short positions were up 6,713 contracts at 68,790 lots. Technical support in the JULY’06 contract is placed at $2.277/bu while support for DEC’06 futures is now at $2.496/bu. Cash sellers that priced up to 40%-50% of new crop corn are still in good shape. Same goes for hedgers. Both hedgers and cash sellers may want to consider pricing up to 20 – 25% of the DEC’07 crop at this time if this wasn’t done last week.

SOYBEANS futures on the Chicago Board of Trade (CBOT) were lower down a range of 8.6¢/bu– 16.0¢/bu across all soybean contracts. The JULY’06 contract closed down 15.6¢/bu at $5.844/bu with NOV’06 bean futures showing the most decline finishing at $6.11/bu, off 16.0¢/bu. As with corn futures good crop growing weather along with forecasts for cooler temperatures beyond the next 10 days in the Midwest fueled the sell-off. The market is expecting USDA to downgrade the U.S. crop condition on Monday from the previous week by 1%-2% because of last week’s heat stress.

Funds sold 4,000-5,000 lots within the first trading hour as sell-stops kicked in, floor sources said. USDA placed last week’s export inspections at 9.7 million bushels, well within estimates of between 7 and 11 million bushels. Export data shows a widening gap of just over 200 million bushels between ‘04/’05 and ‘05/’06 exports. USDA forecasted U.S. ‘05/’06 soybean exports could be off as much as 203 million bushels from last year. Preliminary reports of H5 avian flu being detected in Canada on Friday also weighed on price .

More testing was needed to see if it was the virulent H5N1 strain which has yet to be found in North or South America. Spot cash bids in the Midwest for soybeans early on Monday were mixed amid quiet farmer sales. Opening cash bids for soybeans were 5¢/bu– 9¢/bu higher early on Monday in the MidAtlantic states. Friday’s CFTC Commitments of Traders report showed funds cutting net short positions in CBOT beans for the week ended June 13. Last week it was stated that these prices were showing too high with exports diminishing and USDA ending-stocks-estimates increasing.

Last week’s report strongly encouraged both cash growers and hedgers to get to 50% of new crop sales on that rally. If that did not happen, cash growers are strongly encouraged again to have no unsold old crop beans and to consider selling up to 50% of new crop beans. Hedgers should have up to 50% of the crop protected. Users of soybeans could have all risk in the market. WHEAT in Chicago for JULY’06 closed 0.4¢/bu off at $ 3.584/bu, 15.2¢/bu lower than last week at this time. SEPT’06 wheat futures were down the same amount, 0.4¢/bu but the remaining deferreds closed up a range of a range of 1¢/bu– 1.6¢/bu. Trading was considered mostly lack-luster, floor sources said. Wheat gained slightly on corn and soybeans amid talk of harvest delays due to rains in the major wheat producing areas. Crop specialists on Friday reported the quality of the U.S. ’06 soft red winter wheat crop as fairly good amid spotty reports of head scab, a fungus that can affect both wheat quality and quantity at harvest.

A late drop in corn pressured front-month wheat contracts. CBOT wheat was oversold at the outset of the session and got the expected bounce at the end of the day. The 9-day relative strength index for JULY’06 CBOT wheat stood at 34 before the opening bell, just above the 30-and-below level which most consider and oversold market. Wheat in Kansas City (KCBT) acted much the same as CBOT wheat ending 1¢/bu–2¢/bu lower across all contracts. JULY’06 wheat closed off 1.4¢/bu at $4.610/bu. Most of the KCBT activity occurred in fund spreading wheat/corn or JULY’06/SEPT’06 wheat.

As expected last week, declines off CBOT wheat highs late May attracted export interest. USDA reported on Monday U.S. wheat export inspections at 14.4 million bushels, within the estimated range of 12-17 million bushels. Egypt bought 230,000 tonnes (8.45 million bu) of U.S. and Canadian wheat on Saturday and 175,000 tonnes (6.43 million bu) of U.S. wheat on Monday. India is expected to open for bid a 2.2 million-tonne (80/8 million bu) tender on Tuesday.

Friday’s CFTC Commitments of Traders report for CBOT wheat futures and options combined as of June 13 funds in long positions was at 56,603 contracts, off 1,377 lots from last week. Funds in short positions were placed at 4,017 contracts, down 372 lots from last week. Market data also indicates a sharp drop in open interest as well. 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 by now. Hedgers should have 50% of the ’06 crop and up to 15% - 25% of the ’07 crop protected.

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