Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 12 July 2006
clock icon 7 minute read

LEAN HOGS on the CME closed under the 40-day moving average setting a five-week low. The JULY’06LH contract was off $0.65/cwt at $70.60/cwt while the AUG’06LH contract showed the most decline, off $1.175/cwt at $67.50/cwt. Losses in JULY’06LH futures were limited by its discount to the CME lean hog index price. The latest CME lean hog index was down $0.72/cwt at $72.79/cwt. Spillover long liquidation amid lower cash hogs was seen as part of the reason for the decline. However these mildly oversold futures may provide some support.

Seasonal demand is slowing due in part to hotter weather and weakening live hog prices and slowing slaughter schedules that seem to be overcapacity of demand. USDA on Friday reported the pork cutout at $76.99/cwt, up $0.66/cwt. The average pork plant margin for Monday was estimated at $7.55/head, up $2.10/head from $5.45/head on Friday but down $1.25/head from a week ago, according to HedgersEdge.com. If you haven’t done so on previous advice, 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 should be avoided at this time.

Weather markets continue. Grain producers should use these rallies to price production. Cattle and hog producers should be in the mood to use the markets to protect 3rd and 4th quarter marketings. I agree with this recent quote from a trusted source and friend, “Unless there is a drought in the US (and it has to be more severe than the one we imagined last year) prices for all tradable row crops should be at lower levels by harvest time.”

CORN on the CBOT finished higher on an upward technical move fueled by reports of dry weather forecasts for the U.S. Midwestern cornbelt. Both the JULY’06 and DEC’06 corn contracts closed up 6.6¢/bu at $2.476/bu and $2.724/bu respectively. The JULY’06 contract met resistance at $2.512/bu before closing at $2.476/bu while the DEC’06 futures briefly broke resistance of $2.769/bu reaching $2.77/bu before finishing the day at $2.724/bu. Mimicking last week, farmer selling picked up on the rally before retreating due to the price fall-back not meeting seller expectations.

Weather is the main center of attention for traders at this time as the crop enters the key yield-determinant stage of pollination. Rain is expected on Tuesday and Wednesday. During trading hours floor sources expected USDA to lower U.S. corn crop-condition ratings 1% - 3% to 65%-67% good-to-excellent. Late Monday, USDA placed the U.S. corn crop good-to-excellent condition at 63%. There may be more price opportunity for Tuesday. Traders were seen as evening trading positions ahead of the USDA July crop report due out Wednesday, July 12. Continued reduction in the ’05-’06 U.S. old-crop-corn ending stocks is expected due to very good demand. 2005-’06 ending stocks are expected to decline by 72 million bu to 2.104 billion bu from the June estimate of 2.176 billion bu ending stocks. An upward move is anticipated in ’06-’07 corn ending stocks. 2006-’07 ending stock estimates are expected to rise to between 1.257 billion bu and 1.266 billion bu, up a range of 166 – 175 million bu from the USDA June supply/demand report for new crop corn.

The rise is contributed mostly to an expected increase in U.S. corn acres (up 1.347 million acres to 79.366 million acres) and the possibility of an increase in yield from 149-150 bu/ac to 152-153 bu/ac. Even though last week’s export inspections were disappointing (32.8 million bu vs. estimates for 40-43 million bu) exports are generally seen as good amid increased domestic demand due to ethanol. These are the two main factors tightening the ending stocks balance sheet. The CFTC Commitments of Traders report from last Friday showed funds adding to net long positions in CBOT corn for the week ended July 3. Cash sellers that priced up to 40%-50% of new crop corn are still in good shape. Same goes for hedgers. If you haven’t gotten there use these rallies to take advantage of a very good opportunity to do so. Now is also a good time to price up to 20%-25% of the 2007 corn crop.

SOYBEANS futures on the Chicago Board of Trade (CBOT) showed all contracts through the JULY’07 soybean contract finishing higher in continued choppy trading. Early trading showed an increase in price before falling back amid weather uncertainty. The JULY’06 bean contract closed at $6.030/bu, up 1¢/bu. NOV’06 soybean futures closed up 2¢/bu at $6.324/bu. The uptick is viewed as an expected technical rebound from Friday’s weather reports of drier and hotter weather in the U.S. Midwest even amid forecasts for rain on Tuesday and Wednesday. Floor sources stated that traders were expecting USDA to report late on Monday a 1% - 3% decline in the U.S. soybean condition ratings to 64% good-to-excellent. As with corn, USDA reported on Monday disappointing export inspections for 5.2 million bu vs. estimates between 6 – 11 million bu. China was conspicuously absent from the export destination list.

It is expected that Taiwan will tender an offer to buy between 30,000-60,000 tonnes (1.1 – 2.2 million bu) of U.S. or Brazilian soybeans. Midwest cash bids for beans were spotty early Monday as slow farmer sales supported the market. Traders are positioning ahead of the USDA Supply/Demand report expected to cut ’06-’07 ending stocks to about 586 million bu, down 96 million bu from the June estimate. Additionally, Brazil’s ’05-’06 crop estimates have been lowered 20 million bu to 2.03 billion bu. The CFTC Commitments of Traders report for the week ended July 3 showed funds reducing net short positions in CBOT soybeans and soybean meal while expanding net long positions in soyoil to a 4-to-1 ratio in futures but not options. Both cash growers and hedgers are encouraged to get to 50% of new crop sales on these “choppy-market” rallies. Users of soybeans may still consider having all risk in the market.

WHEAT in Chicago (CBOT) and Kansas City (KCBT) closed higher on spillover strength amid drought worries in the Minneapolis hard red spring wheat crop and rallies in both corn and soybeans. Speculator buying supported prices. Both JULY’06 wheat and JULY’07 wheat futures on the CBOT closed up 1¢/bu and 5.6¢/bu respectively. The JULY’06 closed at $3.824/bu and the JULY’07 contract finished the day at $4.55/bu. The USDA World Supply/Demand report scheduled for Wednesday is expected to show all production for all U.S. wheat up slightly from 1.814 billion bu to 1.82 billion bu. The average estimate for spring wheat is expected to be around 490 million bu. Ending stocks for U.S. new-crop wheat are expected to be around 443 million bu, up from 416 million bu issued for the 2006/’07 wheat crop in the June report and compared to the 505 million bu estimate for the 2005 wheat crop.

The U.S. spring wheat condition ratings are expected to decline 1%-3% from last week’s 52% good-to-excellent. Wheat exports were as disappointing as corn and soybeans inspecting 8.3 million bu vs. estimates of 12-17 million bu. The Philippines did buy 40,000 tonnes (1.49 million bu) of feed wheat from a tender issued late last Friday. The CFTC Commitments of Traders report of last Friday showed funds moving to net short positions of 6,431 lots of CBOT wheat futures for the week ended July 3. Cash sellers should consider having up to 70% of the ’06 crop sold and storing the remainder in an approved elevator until November or December. 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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