Weekly Roberts Report: Livestock and commodity crop prices rally

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 2 August 2006
clock icon 7 minute read

Livestock and commodity crop prices rally as heat grips the country. Grain marketers need to finish up any necessary pre-harvest sales over the next two weeks or so. The next USDA World Supply/Demand report for crops is due out on Friday, August 11, 2006.

LEAN HOGS on the CME closed mostly higher on Monday amid end-of-the-month position squaring pared gains and limited packer delivery. Technical buying produced contract highs in several deferred months but cooled after profit taking developed on the rally. The AUG’06LH contract closed off $0.100/cwt at $68.550/cwt while the OCT’06LH finished up $0.300/cwt at $61.750/cwt. The December through June contracts registered contract highs.

Price support was provided by limited hog movements due to very hot weather. Cash hogs traded $0.50/cwt-$2.00/cwt higher on Monday as temperatures exceeded 100 degrees in many areas. The AUG’06LH contract retreated when some October/August spreading developed where much of the spreading came from rolling long positions ahead of August becoming the spot month. Packer margins remained profitable creating expectations that interest for cash hogs will be maintained.

According to HedgersEdge.com, the average pork plant margin for Monday was estimated at $5.20/head, down $5.50/head from last Friday but up from a negative $0.85/head a week ago at this time,. The latest CME lean hog index was $68.150/cwt early on Monday. USDA on Friday put pork cutout at $70.63/cwt, up $0.51/cwt. Cash sellers should be pushing hogs off the feeding floors at midnight if possible to take advantage of these prices. Hedgers are out of short positions but should remain poised to place new orders. Advancing feed grain input pricing should be considered at this time.

CORN on the CBOT finished up 2.0¢/bu–2.6¢/bu on the nearby and deferreds with the SEPT’06 closing at $2.392/bu, up 2.0¢/bu. DEC’06 corn futures ended at $2.562/bu, higher by 2.6¢/bu. Both these contracts were 12.2¢/bu-12.6¢/bu higher two weeks ago. Although the U.S. corn crop is thought to be past pollination and is now expected to produce a yield trend of at least 149 bu/ac, anxiety over 100-degree temperatures proved slightly bullish. The 14-day Relative Strength Indexes (RSI) for both contracts hovered near the 40 mark showing the effects of net long positions held by the large commodity funds.

The USDA weekly progress report was expected to show that the U.S. corn crop good-to-excellent crop rating would drop by 2%-3%. late on Monday On Monday, USDA reported 43.3 million bu inspected for export despite strong demand for U.S. corn. China is said to be importing corn for the first time in many years and is expected to buy more in the coming months. Indonesia is considering another 100,000 tonne (3.94 million bu) import from either the U.S. or Argentina. Farmers are moving grain to the elevators as they gear up for this year’s harvest. The CFTC Commitments of Traders report for futures/options combined issued last Friday showed funds increasing net long positions by 6,000 lots to 219,000.

Corn may be due for a technical bounce with primary support in the SEPT’06 at $2.363/bu and in the DEC’06 at $2.520/bu. Upward shifts in the 14-day RSIs and 4-day moving averages show upside potential for both contracts. Key resistance in the SEPT’06 and DEC’06 contracts is now at $2.445/bu and $2.611 respectively. Cash sellers that priced up to 40%-50% of new crop corn are still in good shape. Watch for a rally to price up to 10% more of this year’s crop. Those in short positions on the DEC’06 corn futures contract at the $2.65/bu on up to 50% of the crop took profits last Wednesday. Producers wanting to price any of the 2007 corn crop may consider using a basis contract.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were choppy and range-bound on Monday with the AUG’06 contract finishing up 3.0¢/bu at $5.794/bu and the NOV’06 up 1.6¢/bu at $5.996/bu. The most important growing period for U.S. soybeans is expected in August and worries of intense heat across the Midwest trimming yields supported the market. August is considered the key yield-determining time for soybeans as the crop sets and fills pods. USDA was expected to cut its crop rating for U.S. soybeans by 1%-3%. Offsetting that support however are ample supplies, the prospect for cooler temperatures later in the week, and little bullish input from weekly export inspections. USDA reported 7.9 million bu were inspected for export amid export-inspection estimates calling for 7-12 million bu.

Slow August deliveries supported prices early in the day. Large funds were even to net sellers as the CFTC Commitments of Traders report showed them slightly expanding net short positions in CBOT soybeans. Two weeks ago both cash growers and hedgers were encouraged to get to 50% of new crop sales on these “choppy-market” rallies. Cash sales may be advanced to 60% of the crop in the next few days. It may be prudent to consider pricing up to 20% of the ’07 crop. Price may be protected by short positions in the area of $5.95/bu with sell-at-close orders at this time or by buying put options to set a price floor.

WHEAT in Chicago (CBOT) closed higher on Monday in a technical rally with the SEPT’06 wheat contract up 9.0¢/bu at $3.974/bu and the JULY’07 futures up 11.2¢/bu at $4.500/bu. The MAY’07 contract was the biggest gainer on the day finishing up 12.4¢/bu at $4.450/bu. The technical bounce came after last week’s fall to 30-day lows. Buy stops went into effect when the SEPT’06 touched $3.99/bu after breaking resistance at $3.976/bu. News of Taiwan’s and Israel’s potential offers for up to 106,340 tonnes (3.91 million bu) of wheat buoyed the market. India is said to need 4 million tonnes (14.7 million bu) as it tries to keep up with rising prices.

Market support was also seen from a report that China has interest in importing up to 11 million bu (1 million tonnes) of milling wheat and 2 million tonnes of feed wheat) in ’07. USDA on Monday said that 11.8 million bu of U.S. wheat were inspected for export last week amid estimates for 12-17 million bu. Hot, dry weather in the U.S. Northern Plains is seen as aiding the spring wheat harvest but hurting corn and soybean production. The CFTC Commitments of Traders report showed funds expanding net long positions in CBOT wheat for the week ended July 25, 2006. Cash sellers with up to 70% of the ’06 crop sold are in good shape. Use these price rallies to get to that level if not already there. 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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