Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 24 August 2006
clock icon 6 minute read

LEAN HOGS on the CME surged again on Monday. Fund buying, along with short covering, prompted by very strong cash markets helped fuel the surge. Commercial hedging provided some brake work to the whole day. OCT’06LH futures closed at $67.050/cwt, up $0.725/cwt. The DEC’06LH contract finished at $63.975/cwt, also up $0.725/cwt. The October through the April contracts set fresh highs. Open interest on Friday was a record 165,965 lots, up 4,749.

Guiding lean hog futures ever higher was talk of higher cash hog prices on Monday on top of already high cash hog prices from Friday. Cash hogs sold $0.50/cwt-$1.00/cwt higher in the Midwest early on Monday amid strong packer demand. Some traders expect cash markets to come under moderate pressure later in the week as packers meet supply needs for the upcoming holiday. I don’t think they will. Hot weather was seen as slowing weight gains in hogs coming to market tightening supplies.

Also helping prices were ever increase pork exports. Some reports speculate that exports are surging over concerns of mad cow and avian bird flu worries overseas. The latest CME lean hog index was up $0.13/cwt at $72.48/cwt. Cash sellers should still be pushing hogs off the feeding floors as heavy as possible maximize income. Hedgers are still 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 up on Monday with the SEPT’06 closing at $2.21/bu, up 1.2¢/bu and the DEC’06 corn contract up 1.6¢/bu at $2.374/bu. Exports and domestic demand by ethanol producers provided bullish support. USDA showed just over the expected range of 40-45 million bu inspected placing the number inspected for export at 46.5 million bu. South Korea was a major buyer in at 110,000 tonnes (4.3 million bu). Funds bought 1,000 lots.

Cash corn in the Midwest was steady to firm early on Monday. Providing some optimism both the SEPT’06 and the DEC’06 corn contracts were showing almost oversold status on the 14-day Relative Strength Index (RSI). An RSI of 30 or below is said to be technically oversold. CFTC trade data issued late Friday showed funds cutting net long positions in futures/options combined by about 57,000 lots over the past week. Where will the corn numbers take us?

The U.S. Midwest crop tour began on Monday and excellent yields are being seen in Ohio with varying yields in other parts of the corn belt. USDA is expected to show corn crop conditions unchanged from last week. Decent weather is in the forecast. Many believe that the corn numbers issued in the last USDA report are too low. These USDA forecasts have been too low in 4 of the last 5 years. Expectations are that the corn crop will grow from the last report. I agree.

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 $2.350/bu-$2.33/bu range if possible. Corn users should not price any unnecessary corn supplies at this time.

SOYBEAN futures on the Chicago Board of Trade (CBOT) gained on Monday. The SEPT’06 contract finished the day up 1.2¢/bu at $5.482/bu and the NOV’06 futures closed up 0.6 cents at $5.612/bu. Where will the soybean numbers take us? Expectations are that they will grow during this good crop weather. USDA crop conditions came in at 14% good, 44% excellent on Monday. Trading was tight as the market is watching this good crop of soybeans keep growing and growing and growing.

Funds bought 500 contracts. Like corn, the market is technically oversold and a brief chart rise in price may be expected. Both the September and the November 14-day RSI’s registered below 30. Cash beans were steady to firm on Monday. USDA said that 12.4 million bu were inspected for export. This was in the middle of expectations of 8-14 million bu but up nicely from the week before as lower bean prices spurred buying.

CFTC Commitments of Traders report data showed funds expanding net short positions in CBOT soybean futures/options combined for the week ended August 15. Cash sellers should have advanced ’06 crop sales to 70%-80% by this time. Hedgers who placed short positions in the $5.80/bu-$5.81/bu range in NOV’06 soybean futures are still smiling.

WHEAT in Chicago (CBOT) closed up 1.2¢/bu with the SEPT’06 contract closing at $3.656/bu, and the DEC’06 up 2.2¢/bu at $3.854/bu. The SEPT’06 wheat futures in Kansas City (KCBT) closed down 0.4¢/bu at $4.536/bu but the DEC’06 contract on the KCBT finished up 1¢/bu at $4.676/bu. Where will the numbers take us? They are about right on the money. The markets found support amid late trade talks of Brazil and India possibly seeking U.S. wheat.

Drought in the U.S. Plains area and Argentina proved helpful to prices. Funds bought between 1,000 and 1,500 lots on the CBOT. USDA showed 13.7 million bu were inspected for export last week amid range estimates of 14-18 million bu. As with corn and soybeans … wheat contracts are showing technically oversold as well. CFTC Commitments of Traders report saw funds cutting net long positions in futures/options combined by about 11,000 lots for the week ended August 15.

Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Producers may want to 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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