Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 27 September 2006
clock icon 6 minute read

LEAN HOGS on the CME closed lower on Monday with the OCT’06LH futures off $0.525/cwt at $62.125/cwt. This is $1.575/cwt lower than last week at this time. The DEC’06LH contract finished down $0.625/cwt at $59.675/cwt and $2.00/cwt lower than a week ago. Initial short covering from an oversold condition lifted lean hogs early on before prices drained to lower levels. Expectations for lower cash hog prices this week reinforced by large numbers on hand and lower hogs on Monday reinforced selling activities. December/October spreading was active early on.

Friday’s USDA Hogs and Pigs report is expected to show a continuing small increase in total U.S. hog numbers at 100%-101.5% over last year. USDA put cutout up $0.02/cwt at $68.02/cwt on Friday. According to HedgersEdge.com, the average pork plant margin for Monday was estimated at a positive $3.00/head, up $3.25/head from a negative $0.25/head last Friday but only up $0.50/head from a week ago. The latest CME lean hog index was down $0.48/cwt at $68.73/cwt.

Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users may still think about pricing a significant portion of corn supplies at this time as input prices may have established their lows. Try to catch the low bounce in this choppy corn market to price your corn if you haven’t done so.
CORN on the CBOT closed mixed 0.2¢/bu lower to 3.0¢/bu higher with DEC’06 futures contract closing at $2.546/bu, off 0.4¢/bu but still 7¢/bu higher than last Monday’s close. The DEC’07 contract closed at $2.974/bu, up 2¢/bu. Forecasts for better weather to get the crop in pressured nearby futures. Corn was supported by outside crude oil amid worries that farmers will plant enough corn to keep up with demand next year. USDA reported 13% of the U.S. corn crop harvested as of Sunday. The pace is seen as in line with trader estimates of 14%-15% behind the five-year average of 15%.

Exports, reported as routine over the weekend, were slightly below range estimates of 45-50 million bu. US exports are viewed as competing on the world market for cheaper Chinese corn due to what is possibly a record harvest for corn in that country. Estimated volume for CBOT corn futures is placed at 149,788 futures and 27,134 options compared to 180,864 futures traded last Friday. Friday’s CFTC Commitments of Traders report for futures and options combined showed funds in long positions up 10,286 lots from a-week-ago last Tuesday at 268,818 contracts.

Cash corn in the U.S. Midwest on Monday were steady to firm amid a slow harvest due to rainy weather systems in the east. Primary resistance in the DEC’06 corn futures contract is placed at $2.758/bu with support at $2.508/bu. Producers should have considered up to 50% of the 2006 crop forward priced. Consider keeping 20% of the 2007 corn crop priced. Stay on a wait-and-see approach to the ethanol demand factor.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed 2.6¢/bu- 6¢/bu lower on Monday with the NOV’06 futures off 4.2¢/bu at $5.450/bu and 8.0¢/bu lower than this time last week. Better harvest weather forecasts and weakness in Malaysian palm oil and outside crude oil markets provided bearish influence. USDA reported late on Monday that 9% of the U.S. soybean crop has been harvested as of Sunday. This is behind both the 5 year average pace of 12% and trade expectations of between 10%-12%.

USDA also is forecasting that the U.S. harvest will be the second largest in crop history. Even dry areas are showing record harvest yields. Exports reported on Monday by USDA were within range estimates for 8-13 million bu at 12.981 million bu. Trading volume on Monday was heavy in CBOT soybeans estimated at 93,884 futures and 13,809 options. Funds sold 3,500 soybean futures. Funds were reported slightly reducing net positions with longs down 1,867 lots at 55,326 and shorts at 104,804, off 2,354 contracts. Cash sellers should have considered pricing up to 70%-80% of the ’06 crop by now. Prices are expected to remain lower in choppy trading. Buying a put option may still be considered a good idea.

WHEAT in Chicago (CBOT) finished the day down with DEC’06 futures closing at $4.136, off 5.2¢/bu. Funds sold 2,000 contracts amid volume estimates of 48,829 futures and 5,107 options compared with Friday’s 47,567 futures and 7,406 options. After rallying last week, CBOT wheat prices sank along with Kansas City wheat amid unconfirmable rumors of U.S. wheat sales to Iraq. Floor sources were quoted as saying the market did not like seeing news of sales to Iraq of a substantial amount of wheat only to find that the sale may not be anything close to reality.

USDA reported that 16,701 million bu of wheat were inspected for export last week amid range estimates between 15-20 million bu. Favorable wheat planting conditions also added market pressure amid reports that 36% of the crop being planted. This level is still behind the 5 year average planting schedule of 39% but ahead of trade estimates of between 32%-35%. Improving crop weather in Argentina also proved bearish to prices. The CFTC’s Commitments of Traders report out last Friday showed funds expanding net short positions in CBOT wheat for the week ended 9/22/06. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Hedgers may consider having 70% of the ’06 crop protected.

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