Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 30 August 2006
clock icon 6 minute read

LEAN HOGS on the CME closed higher on Monday amid short covering spurred by the discount of futures to cash, some spillover from live cattle, and buying recommendations from a major market research group. Gains in DEC’06LH futures were seen as a result of spreading action. The OCT’06LH contract closed up $0.375/cwt at $65.400/cwt while DEC’06LH futures gained $0.725/cwt closing at $62.750/cwt. Lean hog futures set a record for open interest on Friday of 173,801 lots. Prices are expected to work lower in the future. Floor sources on the CME state that a weak tone to cash hogs and expectations for declining demand due to seasonality still weigh on the market.

Expectations are for heavier hogs coming to the plants as cooler weather helps weight gains lost during the July heat wave and flash drought in the Mid-Atlantic. Hog numbers have increased in some areas after an extensive heat wave in July delayed marketings. According to HedgersEdge.com, the average pork plant margin for Monday was estimated at a positive $0.35/head, up from a negative $1.45/head on Friday and a negative $0.25/head a week ago at this time. Spreading checked gains in the October while helping the December’06 contract make headway. Cash sellers should consider 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. Corn users may think about pricing a portion of corn supplies at this time as input prices may resume an upward bounce in the near term. Buying a $2.40 call would establish a ceiling for 11.6¢/bu.

CORN on the CBOT traded sideways within established boundaries finishing down slightly on Monday with the SEPT’06 closing at $2.244/bu, off 0.4¢/bu and the DEC’06 corn contract down 0.6¢/bu at $2.410/bu. Large stocks proved bearish but were offset by strength in wheat and bullish demand data that supported the market. Estimates from the Pro-Farmer crop tour last week were seen as somewhat supportive in the market. Pro-Farmer crop estimates placed this year’s U.S. corn crop 114 million bu below the USDA forecast at 10.862 billion bu. The lower crop estimates were based on hot weather hampering crop development cutting into yield possibilities.

The next USDA report is due out on September 12. At 4:00 p.m., EDT, USDA released its crop progress and condition report showing the U.S. corn crop good- to-excellent rating down 1% from last week at 57%. Exports were slow over the weekend with USDA reporting 42.4 million bu being inspected last week within range estimates of 40-45 million bu. Cash corn bids were steady to firm in the Midwest and steady to slightly lower in the Mid-Atlantic. Key resistance in the SEPT’06 corn futures contract is at $2.283/bu and at $2.449/bu in the DEC’06 corn futures. Support for the SEPT’06 contract is now at $2.239/bu and at $2.404/bu for the December ’06 contract. Friday’s CFTC Commitments of Traders report for futures/options combined through last Tuesday showed long funds down 11,146 lots from the previous week at 261,991.

Funds in short positions were up net 16,103 lots to 151,159 contracts. Cash sellers that priced up to 40%-50% of new crop corn are still in very good shape. A $2.40/bu put option in the DEC’06 futures cost 10.6¢/bu and may be considered to establish a price floor on another 20% of the ’06 crop. Producers may still want to price up to 10%-20% of the 2007 corn crop. Hedgers may consider having sell-at-close orders in place at the $2.380/bu-$2.385/bu range in the DEC’06 futures if possible.

SOYBEAN futures on the Chicago Board of Trade (CBOT) lost ground on Monday. The SEPT’06 contract finished the day $5.376/bu, off 5.2¢/bu. The NOV’06 futures closed down 5.0¢/bu at $5.520/bu. Growing outlook in already large stocks pressured price as contract lows were made in all months except the NOV’06. The John Deere Pro-Farmer tour placed the U.S. soybean crop at 3.023 billion bu, 95 million bu higher than USDA’s August projections. The USDA placed export inspections for U.S. soybeans for last week at 12.2 million bu, well within the 9-15 million bu estimates. The market factored in USDA soybean crop condition ratings report expectations. The report placed the good-to-excellent rating at 59%, 1% higher from last week.

Timely moisture in the Midwest proved beneficial for soybean pod-filling. Cash soybeans in the Midwest were steady early on Monday. Cash beans in the Mid-Atlantic opened as much as 9¢/bu lower in early trading. The NOV’06 contract showed near oversold status with a 14-day Relative Strength Index (RSI) of 30.75. A contract is technically judged oversold at or below 30 RSI and overbought at or above an RSI of 70. Friday’s CFTC Commitment of Traders report showed funds cutting back on net short positions in CBOT beans as of Aug. 22. Cash sellers should have considered advancing ’06 crop sales to 70%-80% last week. A put option in the November contract may be considered to establish a price floor. 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 6.2¢/bu with the SEPT’06 contract closing at $3.846/bu, and the DEC’06 futures up 6.0¢/bu at $4.042/bu amid concerns over tightening world supplies and short covering. USDA reported weekly export inspections of U.S. wheat within range estimates of 12-18 million bu at 14.7 million bu. As moisture in the U.S. Plains region recharged soil moisture ahead of fall seedings, cash wheat was virtually unchanged and remained steady to slightly higher in the Mid-Atlantic. CFTC Commitments of Traders report showed funds growing net short positions by 16,600 lots for the week ended Aug. 22. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. An at-the-money call option purchase may be considered at this time. Hedgers may consider having 70% of the ’06 crop protected.

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