Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 28 June 2006
clock icon 7 minute read

Weather continues to drive the commodity grain and wheat markets. Cattle are sharply higher. Hogs manage to hold on.

LEAN HOGS on the CME rallied late to offset the bearish influence of lower cash hogs early on Monday. The rally was supported by the discount of futures to cash and spillover gains from the cattle markets. Hog futures posted losses much of the day before ending up on fund buying. JULY’06LH futures in Chicago closed at $74.00/cwt, up $0.775/cwt. The AUG’06LH contract closed up $0.70/cwt at $70.725/cwt. Early pressure on hog futures were influenced by lower Midwest cash markets on Monday.

The latest CME Lean Hog Index price was up $0.46/cwt at $80.89/cwt. Packers are seen as cutting back on kill numbers to improve margins lifting pork carcass cutout values to the highest level since July 13, 2004. The USDA reported last Friday that the pork cutout value was up $0.76/cwt at $82.48/cwt. The average packer margin on Monday was up $3.55/head from a negative $0.60/head, placed at a positive $2.95/head. Last week’s estimated average packer margin was estimated at a negative $5.15/head according to HedgersEdge.com. The price trend is expected to be lower most of the week amid uneven futures trading due to the discount and positioning ahead of Friday’s hog report, traders said.

Early estimates from total U.S. hog numbers as of June 1 range from 100.4% - 101.4% of last year at this time. Breeding herd estimates range from 100% - 102% of a year ago. Market hog estimates range from 100.3% - 101.5% of a year ago. Cash sellers should consider protecting 3rd & 4th quarter marketings at this time. Likewise, hedgers should be in protective positions on 3rd & 4th quarter sales. Advancing feed grain input pricing could be considered at this time.

CORN on the CBOT for the nearby and deferred months gapped down on Monday with the JULY’06 contract off 5.2¢/bu at $2.296/bu, and 7.3¢/bu lower than last Monday’s close. Deferred months closed off a range of 5¢/bu - 6.4¢/bu. The DEC’06 corn contract closed down 6.2¢/bu at $2.49/bu and DEC’07 corn futures closed at $2.694/bu, off 6.4¢/bu. The DEC’06 corn contract high was established on May 17 at $2.866/bu. Primary support in DEC’06 corn futures was broken at $2.537/bu. Support is now at $2.494/bu. The DEC’06 corn futures contract finished below all key moving averages and the 9-day Relative Strength Index (RSI) approached oversold status at 32.59. An RSI of 30 or under is considered an oversold status of a market while a market showing an RSI over 70 is said to be oversold. Moisture amid mild temperatures over the weekend and forecasts calling for more rain this week proved bearish on the market. Much needed rain is expected to give a shot in the arm to crop development over the next few days in the U.S. Midwest with traders reporting they expect a 1% - 2% improvement in corn crop ratings in Monday’s late USDA Crop Progress report.

News placed exports quiet over the weekend. USDA export inspections of 41.4 million bu were below estimates of 42 – 50 million bu. Cash bids for corn in the Midwest were steady to firm early on Monday showing slow local sales. Cash corn in the Mid-Atlantic was steady to lower as wheat harvest picks up. Funds sold 10,000 lots as Friday’s CFTC Commitments of Traders report showed long funds cutting net positions in CBOT corn for the week ended June 20. As of last Tuesday, large speculators in long corn futures held a huge long position at 260,893 lots. Today, data showed funds still long 171,457 contracts in corn futures/options combined. Cash sellers that priced up to 40%-50% of new crop corn are still in good shape. Same goes for hedgers.

SOYBEANS futures on the Chicago Board of Trade (CBOT) were lower, down a range of 5¢/bu– 14¢/bu across all soybean contracts. The NOV’06 soybean contract finished off 12¢/bu at $5.944/bu. The JULY’06 soybean contract muddled along below all key moving averages before breaking support at $5.755/bu, going to $5.664/bu, then reclaiming some ground to close at $5.694/bu, down 11¢/bu. Resistance was at $5.84/bu. The same rains that pulled on corn futures affected the soybean crop for the same reasons … expectations of a better crop that is almost unstressed everywhere.

Good crop weather is expected to continue. Traders stated they expected USDA to report a 67% good-to-excellent crop rating. This would be up two percentage points from last week and four percentage points better than last year. Exports were on the low side with inspections placed at 8.405 million bu. The estimated range for export inspections was 8 – 15 million bu. Cash beans were mostly steady in the Midwest and steady to 2¢/bu lower in the Mid-Atlantic. Friday’s CFTC Commitments of Traders report showed funds adding to net short positions in CBOT soybeans ending June 20. Both cash growers and hedgers were encouraged to get to 50% of new crop sales recently. Users of soybeans could have all risk in the market.

WHEAT in Chicago (CBOT) for JULY’06 closed up 5.2¢/bu at $ 3.684/bu. This is 10¢/bu higher than last Monday’s close. Wheat markets got a lift from the late surge in the Minneapolis market amid expectations of dry weather in the U.S. spring wheat belt, floor sources said. Deferred months were up 2.4¢/bu - 5¢/bu with the JULY’07 wheat contract up 2.6¢/bu closing at $4.352/bu. At the Minneapolis Grain Exchange (MGE) the DEC’06 wheat contract was the most active, up 11.2¢/bu finishing at $4.792/bu. Traders say they are closely watching the condition of the spring crop after drought shrank the size of the U.S. Plains HRW wheat crop, tightening supplies.

USDA lowered the condition of the U.S. spring wheat crop by 3% reporting 57% in good-to-excellent condition. Additionally, the U.S. winter wheat crop was placed at 53% harvested by USDA. This was within the 50% - 55% range of trade estimates. Export data buoyed the market with USDA reporting export inspections of U.S. wheat last week at 18 million bushels, above estimates of 12 – 17 million bushels. “The only thing that limited the rally were forecasts for improved weather in the U.S. Plains,“ stated several traders. Friday’s CFTC Commitments of Traders report showed funds cutting long positions in futures/options combined for CBOT wheat to a net-short position for the week of June 20. Monday’s CBOT activity showed funds buying 2,000 contracts.

Friday’s CFTC Commitments of Traders report for large speculators in Kansas City (KCBT) wheat only trimmed heavy net long positions for the week of June 20. The KCBT market shows some opportunity for long liquidation as funds trading on the KCBT remained net long a sizeable 49,837 contracts. At this point cash sellers should seriously consider selling up to 70% of the ’06 crop and storing the remainder until November or December after the corn and soybeans are moved out of elevator bins. Producers may also think about selling up to 30%-40% of the ’07 crop at this time. Hedgers should have 70% of the ’06 crop and up to 25% - 35% of the ’07 crop protected.

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