Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 12 October 2006
clock icon 7 minute read

Fundamental pressures and technical trading leave orders unfilled at the close in some contracts across the board except for Hogs. Grain and soybean futures went higher on Monday in Chicago leaving buy orders unfilled. The Chicago Board of trade suspended December ’06 Corn and December ’06 Wheat electronic futures early because of limit conditions. Hog futures traded mixed while some cattle futures declined limit-down leaving sell orders unfilled.

LEAN HOGS on the CME closed down on Monday with the OCT’06LH off $0.225/cwt at $64.350/cwt. This, however is $0.10/cwt higher than this time last week. The DEC’06LH contract finished down 0.450/cwt however, closing $ at $59.175/cwt, down $1.275/cwt from last Monday. The December fell under its 100-day MA to a 9-week low.

Weak chart signals, lower cash hogs on Monday and talk of even lower prices this week pressured prices. Some substantial late short-covering trimmed losses at the end of the day. Packers are viewed as cutting back slaughter rates the keep margins in the black even though the cutout value was up on Friday amid positive packer profits. Additionally, packers think that increased hog numbers on feed will keep them in a good supply situation for some time. On Friday, USDA put the pork carcass cutout at $68.67/cwt, up $0.25/cwt.

The latest CME lean hog index was up $0.96/cwt at $66.19/cwt. According to HedgersEdge.com, the average pork plant margin for Monday was estimated at a positive $1.90/head, up $4.45/head from a negative $2.55/head on Friday but down $3.40/head from a positive $5.30/head a week ago at this time. Cash sellers should market hogs at the correct weights now not pushing them off the feeding floors too fast. Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users should hold off pricing inputs at this time while considering selling a put option.

CORN in Chicago on the Chicago Board of Trade (CBOT) finished higher a range of 6.4¢/bu to 18.4¢/bu with the DEC’06 futures contract closing at $2.894/bu, up 18.4¢/bu for the day and 21.8¢/bu higher than last Monday’s close. The new life-of-contract-high for DEC’06 corn futures was set after hanging above key moving averages and showing oversold status closing with a 9-day Relative Strength Index (RSI) of 70.12.

A contract is considered technically oversold at or above 70 and technically overbought at or below an RSI of 30. The DEC’07 contract finished up 15.4¢/bu at $3.210/bu while DEC’08 futures rose 6.4¢/bu to finish $3.190/bu. Near the close of the day on Monday corn futures rallied to the 20¢/bu trading limit following binding, limit-up gains in the three, nearby CBOT wheat contracts, floor sources are quoted. The reason … dwindling world stocks of wheat and prospects for falling feed grain supplies late next year due to good demand for corn via exports, livestock, and ethanol interests.

Believe it or not gains were slowed by harvest of a large U.S. corn crop. Corn exports have an overall nice pace but were quiet over the weekend. World stocks for corn are seen as dwindling for the 2006/2007 crop year. Cash bids were steady to mixed in the Midwest while steady to lower in the Mid-Atlantic states. Friday’s CFTC Commitments of Traders report showed funds expanding heavily bullish positions in CBOT corn for the week ended October 3. Producers may consider advancing 2006 crop corn sales another 10% to 60% and pricing another 10% to 30% of the 2007 corn crop. 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 4.0¢/bu to 15.0¢/bu higher on Monday. NOV’06 soybean futures closed up 10.4¢/bu at $5.744/bu. This close was 29.2¢/bu higher than this time last week. The NOV’07 soybean contract finished at $6.314/bu, up 11.4¢/bu and 24.0¢/bu higher than last week. One floor source talked to on Monday said, “This is all about wheat.

Everything else has to go up at least a little to keep the spread relationship somewhat rational.“ The rally was limited by record large stocks of soybeans and harvest showing a potentially record setting crop. Funds bought 10,000 lots. Exports were quiet over the weekend. Cash soybeans on Monday were steady to firm in the U.S. Midwest while solidly higher in the Mid-Atlantic states. Friday’s CFTC Commitments of Traders report showed funds pulling back from net short positions in CBOT soybeans for the week ended October 3. The NOV’06 contract stayed above its 50-day Moving Average (MA) of $5.613/bu which is an important price support point.

Key resistance is at its 100-day MA of $5.883/bu. The NOV’06 soybean chart gives an indication that a double bottom has occurred with a measuring objective of $5.83/bu, just below the 100-day MA. Cash sellers not priced to 70%-80% of the ’06 crop by now have a chance to catch up on this rally as it may last for a few more days. If harvest proves to be a record one it will be time to take profits in long positions and for hedgers to place short positions protecting profits. The USDA World/Supply Demand Estimates will be out on October 12, 2006 and will either sustain this bull run or prove bearish quickly.

WHEAT in Chicago (CBOT) finished the day up with DEC’06 futures closing at $4.940/bu, up 30.0¢/bu and 28.0¢/bu higher than last week at this time. JULY’07 wheat finished at 4.790/bu, up 10.4¢/bu, and 13.6¢/bu higher than this time last week. Wheat on the CBOT led the charge with front months binding limit-up halfway through the trading day and staying that way until the close. Wheat futures were also up the limit on Monday in Kansas City. DEC’06 wheat in Kansas City (KCBT) closed up the 30¢/bu limit at $5.316/bu, leaving about 200 – 400 buy orders unfilled.

Partly fueling the run were concerns for the next Australian crop dropping disastrously below 10 million tonnes (367 mi bu) further tightening world supplies. Active export demand around the world increased as new demand from Tunisia and Algeria added support. Also proving bullish was a Ukraine announcement on new grain export quotas to guard against shortages in that country. The Ukraine Agriculture Ministry lowered its 2006 grain harvest forecast to 34.7 million tonnes (1.28 bi bu), down 2.54 million tonnes (93 mi bu) from the previous production figure of 37.16 million tonnes (1.37 bi bu).

Additionally, international wheat export data showed Russian wheat exports outside the Commonwealth of Independent States falling by 10.7% in January-August from the same period last year. Funds bought 5,000 lots with 1,000 lots unfilled. Cash wheat in the Midwest was steady to somewhat higher while in the Mid-Atlantic states wheat was slightly lower. Friday’s CFTC Commitments of Traders report showed funds moving to net-long positions in CBOT wheat futures/options combined for the week ended October 3. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Buying a call option may also be considered at this time.

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