Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 16 August 2006
clock icon 7 minute read

The USDA World Supply/Demand report from Friday, August 11, 2006 show tremendous crop levels but lower corn and soybean production numbers. U.S. corn and soybean use-predictions continue to outpace production estimates.

LEAN HOGS on the CME closed mixed on Monday. AUG’06LH futures expired at noon, CDT, closing at $71.750/cwt, off $0.075/cwt. OCT’06LH futures closed unchanged at $64.50/cwt while the DEC’06LH contract finished at $61.85/cwt, up $0.05/cwt. The DEC’06LH futures contract set fresh highs touching $62.00/cwt. Cash hogs were reported steady early on Monday, but floor sources are expecting lower cash markets on Tuesday as the cooler weather allowed some backing up of inventories to gain more weight.

USDA on Friday reported the pork cutout at $72.97/cwt, up $0.57/cwt. According to HedgersEdge.com, the average pork plant margin for Monday was estimated at $0.15/head, up $1.70/head from a negative $1.85/head. Hog slaughter on Monday was estimated at 391,000 head, up 55,000 from one week ago and 10,000 head from a year ago.

Cash sellers should still be pushing hogs off the feeding floors. Hedgers are out of short positions but should remain poised to place new orders. Advancing feed grain input pricing should not be considered at this time.

CORN on the CBOT finished down Monday a range of 2.6¢/bu–3.4¢/bu with both the SEPT’06 and the DEC’06 contracts showing fresh lows. SEPT’06 futures finished the day at $2.22/bu, down 2.6¢/bu. The DEC’06 contract closed off 3.4¢/bu at $2.382/bu. The nearby and deferreds through the SEPT’07 contract all showed gap down moves. Forceful fund selling provided intense momentum to Monday’s activity after Friday’s USDA corn production report. Also proving bearish on prices were reports of good corn-growing weather in the U.S. Midwest.

U.S. corn production is now pegged at 11.0 billion bushels, down about 1% from last year and 7% from the year before. However, this is slightly more than the July WASDE report showing 10.74 billion bushels of corn. Weather conditions in August are making forecasters show corn production 4.3 bu/ac higher than last year’s 152.2bu/ac. This would be the second largest corn yield and third largest corn production on record! Ending stocks are now at 1.232 billion bu for the 2006/’07 crop year. Season average farm price is nw expected to fall somewhere between $2.15/bu-$2.55/bu.

A bright spot is that World stocks are seen as declining and were placed at 92.88 million metric tonnes, or about 3.7 billion bu. World ending stocks last year were a little over 127 million metric tonnes (~ 5 billion bu). Funds sold between 10,000 and 15,000 lots in a whopping volume day. CBOT volume in corn was a record 371,918 contracts on Friday, up 5,496 lots over the previous record of 336,422 lots set in May 2006. 371,918 contracts equate to 1.86 billion (with a “b”) bushels of corn … almost one-half the expected world ending stocks!

That’s almost 200,000 contracts more than last week at this time. Whew! USDA reported 45.9 million bushels of corn inspected last week. This was within the range of 42-48 million bushels expected. Expectations for China’s exports are diminishing amid rumored expansion of corn processing in that country. Meanwhile, Israel bought 56,000 tonnes (2.2 million bu) of U.S. corn over the weekend. Supported by slow farmer sales cash corn prices early Monday were steady to firm in the Midwest while showing strength above basis in the Mid-Atlantic.

The CFTC Commitments of Traders reports from last Friday place long funds in CBOT corn futures/options combined 7,800 lots lower than one week ago at about 195,000. Cash sellers that priced up to 40%-50% of new crop corn are still in very good shape. Sales may be advanced more at this time. Producers may want to price up to 20% of the 2007 corn crop. Hedgers should have sell orders in place at the $2.50/bu-$2.51/bu range. Corn users should not price any unnecessary corn supplies at this time.

SOYBEAN futures on the Chicago Board of Trade (CBOT) slipped on Monday while the AUG’06 contract expired with a whimper at $5.496/bu, down 1.2¢/bu. The NOV’06 contract finished the day up 1¢/bu at $5.692/bu as the market tested price-objective support at $5.68/bu. Short covering supported the market late in the day. The technical bounce at the end of the day came as the 14-day Relative Strength Index (RSI) dipped to around 30.

An RSI of 30 or below is said to show an oversold market. Weighing on the market was follow-through selling from Friday’s tumble to 8+ month lows over the back drop of good crop-finishing weather and the USDA report showing burdensome stocks. The market shows to have taken into account the full effect of the USDA report by now. U.S. soybean ending stocks were reduced by 110 million bu to 450 million bu for the 2006/2007 crop year. Production was forecast 5% lower than last year and 6% lower than 2004 with the production estimate now at 2.93 billion bu.

Export inspections from last week were disappointing with 5.7 million bu inspected compared to range-estimates of between 9-12 million bu. The season average farm price forecast remained unchanged at $5/bu-$6/bu. The CFTC Commitments of Traders report from last Friday showed funds expanding net short positions in CBOT bean futures/options as of Aug. 8, 2006.

Cash bids for soybeans early Monday were steady to firm, supported by slow producer sales. It would have been considered prudent to think about advancing ’06 crop sales to 70%-80% up of the crop. Hedgers who placed short positions in the $5.80/bu-$5.81/bu range in NOV’06 soybean futures are smiling.

WHEAT in Chicago (CBOT) showed firm to slightly lower with the SEPT’06 contract closing at $3.74/bu, up 0.2¢/bu and the DEC’06 down 1.2¢/bu at $3.942/bu. Late short covering supported some prices slowing bearish activity. As expected last week, the wheat markets are tagging pretty much with the grain markets. Weak corn and soybeans weighed on the market most of the day in follow-through selling from Friday’s sag.

Funds sold 4,000+ lots in CBOT/KCBT and CBOT/MGE spreading. KCBT prices sank amid rains in the Plains. However some support was seen from Egypt’s purchase of 110,000 tonnes (4.04 million bu) of U.S. and Canadian Wheat. Weekly export inspections were lower than expected at 14.3 million bu. Exports were estimated to be between 15-20 million bu.

September traded below all key moving averages. The CFTC Commitment of Traders report showed funds in net long positions in CBOT wheat futures/options combined almost unchanged from the week before. Cash sellers with up to 80% of the ’06 crop sold are in good shape. Producers may still think about selling up to 30%-40% of the ’07 crop at this time. Hedgers may consider having 70% of the ’06 crop and up to 25% - 35% of the ’07 crop protected.

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