Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 4 October 2006
clock icon 6 minute read

LEAN HOGS on the CME closed higher on Monday with the OCT’06LH up $0.625/cwt at $64.250/cwt. The DEC’06LH contract finished down 0.400/cwt however, closing $ at $60.450/cwt. October/December spreading was noted as pushing the DEC’06LH contract lower. The October contract was supported by strong to steady cash-hog prices and by strong cattle futures. Packer demand registered stronger showing huge kill numbers of hogs while increasing demand for fresh supplies to meet production.

On Friday USDA placed all hogs on farms and hogs held back for market 101% higher than this time last year. Hogs kept for breeding was 102% of last year’s number. The latest CME lean hog index was down $0.66/cwt at $64.25/cwt. According to HedgersEdge.com the average pork plant margin for Monday was $1.00/head lower at $5.30/head compared to $6.30/head reported last Friday. However, this was $2.30/head better than the $3.00/head issued last week at this time.

Cash sellers should be trying to take advantage of this market pushing hogs off the feeding floor as soon as they can go, even if they are a little on the light side. Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users may want to consider selling a put option at this time.

CORN on the CBOT finished higher a range of 4.4¢/bu to 6.2¢/bu with the DEC’06 futures contract closing at $2.676/bu, up 5.2¢/bu for the day and 12.4¢/bu higher than last Monday’s close. For two trading days in a row the DEC’06 contract has pushed through resistance levels. Last Friday, the DEC’06 contract broke through key resistance set on August 4. On Monday the DEC’06 corn contract broke key resistance of $2.684/bu established July 18. The DEC’07 contract closed at $3.074/bu, up 5.0¢/bu. Demand for corn was active amid expectations of dwindling feed grain stocks with some expectations forecasting 30-year lows toward the end of next year. Strength in the wheat market was also supportive. A break in harvest weather forecasts is seen as bearish on the market.

Late Monday, USDA placed the U.S. corn harvest at 20% complete after the market traded all day expecting the crop to be 23%-24% harvested. Cash corn bids in spots were steady to somewhat soft in the Midwest ahead of the anticipated harvest. USDA reported Monday that 39.774 mi bu of corn was inspected for export last week. This was below estimates of between 40-42 mi bu. The 14-day Relative Strength Index (RSI) finished at 62.98. A contract is said to be near or at oversold status at 70 or higher.

The CFTC Commitments of Traders report showed funds on Friday had expanded net long positions in CBOT corn futures/options combined for the week ended September 26 being 291,924 long contracts, up 23,105 lots vs. short positions down 37,017 lots at 113,367 contracts. Producers may consider sticking with 50% of the 2006 crop forward priced and 20% of the 2007 corn crop priced. Demand indicates that a buying a call option in corn futures at this time may be a good idea.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed 1.0¢/bu to 4.0¢/bu lower on Monday. NOV’06 soybean futures closed down 2.2¢/bu at $5.452/bu while the NOV’07 soybean contract finished at $6.074/bu, off 2.4¢/bu. Expectations for more soybeans moving into the market from harvest proved bearish. Late on Monday USDA placed the U.S. crop 19% harvested after the market traded all day expecting the number to be nearer 23%. Exports were supportive amid confirmed reports from USDA that South Korea bought 110,000 tonnes (4.0+ mi bu) of U.S. soybeans.

This was good news in addition to reports of 19.571 mi bu being inspected for export compared to range estimates of between 10-12 mi bu. Harvest momentum is expected to gain steam further softening cash soybean bids in the Midwest. CFTC’s Commitment of Traders report issued last Friday placed funds in unchanged net-short positions in futures/options by a 2:1 margin. Funds data placed long contracts at 50,986 lots, down 4,340 and short positions at 101,002 lots, down 3,801 contracts for the week ended Sept. 26.

Cash sellers should have considered pricing up to 70%-80% of the ’06 crop by now. Buying a put option might not be a bad idea. Prices are expected to remain steady to lower in choppy trading as harvest progresses.

WHEAT in Chicago (CBOT) finished the day up with DEC’06 futures closing at $4.460/bu, up 3.0¢/bu and 32.4¢/bu higher than last week at this time. JULY’07 wheat finished at 4.654/bu, up 5.4¢/bu. The market was held back by late profit taking as the market backed off from near oversold status buoyed by expectations of declining world stocks. Some CBOT wheat approached 10 year highs flirting with almost $5.00/bu on deferreds. Both the U.S. Plains and Australian wheat crops are seen as in need of moisture. Exports for U.S. wheat were on the low end of estimates between 16-18 mi bu at 16.049 mi bu.

CBOT announced it will raise wheat margins to $1,080/lot from $945/lot at the close of Mondays trading to trade more effectively at these levels. CFTC Commitment of Traders report showed funds trimming net short positions in CBOT wheat futures/options to a nearly even status from 8,800 net short lots as of Sept. 26. New annual volume records for hard red winter wheat futures contracts and the exchange as a whole were set on Monday in Kansas City (KCBT) officials said. September’s ending exchange volume was placed at 4.196 million contracts, 46.2% ahead of last year at this time and 6.1% more than the record set last year.

Hard red winter wheat contract volume was 2% greater than last year at this time, placed at 3.757 million contracts. Comparing the end of September ’06 with the end of September ’05, open interest in HRW was up 43.9%. Wheat options volume and open interested also posted gains, placed at 17% and 78.3% higher respectively than this time last year. The KCBT HRW market is the world’s largest futures market. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Buying a call option may considered at this time.

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