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Weekly Roberts Report

by 5m Editor
18 October 2006, at 9:47am

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME closed down $0.250/cwt on Monday with the DEC’06LH finishing the day at $60.800/cwt. The FEB’07LH closed down $0.50/cwt at $63.225/cwt. December hit resistance at the 40-day moving average. Some later contracts moved higher. Short covering helped lift futures early. However, selling by locals and the funds started early amid lack of follow through. Sell stops under $61.200/cwt accelerated losses in the December.

One trader said that commercial selling began on softer product outlook amid market weakness. Packer margins are strong while good demand for hogs keeps slaughter rates at or near record levels. However, these rates are expected to weigh on price as the week progresses. Friday’s hog kill was estimated at a possible record 425,000 head with weekly kills expected to reach 2.2 million head soon. Monday’s kill was placed at 419,000 head, higher than expected and larger than the 404,000 head processed a year ago. The average pork plant margin for Monday was estimated by HedgersEdge.com at $6.25/head, down from $7.25/head on Friday but up from $1.90/head a week ago. USDA on Friday placed the pork carcass cutout at $69.55/cwt, off $0.01/cwt.

December was at a large discount to the CME Lean Hog index and may limit any selling in that month. The index was down $0.97/cwt at $65.70/cwt. Cash sellers should continue to market hogs at the correct weights not pushing them off the feeding floor too soon. 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 6.0¢/bu lower to 3.0¢/bu higher with the DEC’06 futures contract closing at $3.166/bu, up 2.2¢/bu from the last close and 27.2¢/bu higher than last Monday. Three new life-of-contract-highs for DEC’06 corn futures have been set since then. The DEC’07 contract finished the day down 3.4¢/bu at $3.210/bu amid profit taking for it and other deferred futures contracts. The late surge in December wheat helped nearby corn futures. Floor sources say they are worried about tightening global feed grain stocks and potential rallies in wheat.

Volume on the Chicago Board of Trade (CBOT) was estimated at 246,830 corn futures and 123,390 options contracts compared to Friday’s corn contract volume placed at 291,725 futures and 163,162 options. USDA placed the U.S. corn harvest at 41% complete as of Sunday, 12% from one week ago and within trade expectations for 41%-45%. Export news show prospects for Canada to import U.S. corn this year to make up for short feed-wheat production. USDA on Monday reported that 105,664 tonnes (4.2 mi bu) had been sold to Japan. USDA said that 41 million bu of U.S. corn had been inspected for export compared to trade export-range-estimates of 41-48 mi bu,. Cash-corn in the Midwest on Monday was steady to somewhat off due to rising cash prices last week.

Cash bids in the Mid-Atlantic states were steady to slightly higher on Monday. The DEC’06 contract was well above all key moving averages and the 14-day Relative Strength Index (RSI) was near overbought status at 69.50. A contract is considered overbought at 70 or above. Friday’s CFTC’s Commitments of Traders report for futures and options combined showed funds increasing net long positions by 4,270 to 310,794 contracts and decreasing net short positions by 23,448 lots to 70,803 lots.

Advice from last week still holds. Producers may consider advancing 2006 crop corn sales another 10% to 60% and pricing another 10% to 30% of the 2007 corn crop. Thinking that this corn crop may still come up shorter with ethanol demand increasing 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 mostly lower on Monday amid technical selling and profit taking. NOV’06 soybean futures closed down 2.4¢/bu at $5.890/bu. However, this close was 14.6¢/bu higher than this time last week. The NOV’07 soybean contract finished at $6.472/bu, down 2.0¢/bu but 15.8¢/bu higher than last Monday’s close. With the wheat market less volatile than last week, soybeans were quiet most of the day with little reaction to a late rally in wheat.

Soybeans usually trade at a $2-$3 premium to wheat. This has changed. Soybean/wheat spreads were pushed to levels not seen in thirty years with news of wheat stocks reaching 25-year lows and soybean supplies at all-time highs. Weekly export inspection data provided market support with USDA reporting 38.6 milion bu inspected. This was above trade estimates for 25-35 mi bu. China bought nearly 15 million bu. Cash bids for soybeans in the U.S. Midwest were firm on Monday as dealers tried to encourage farmer selling even as farmers were busy in harvest and not too quick to sell while waiting on higher prices.

USDA placed the soybean harvest on Monday at 69% complete, above trade estimates for 64%-67%. Argentina placed expected planted acres for the ‘06/’07 crop 3% higher than last year. Weakness in beans overhung other commodities. Cash sellers should consider remaining priced at 70%-80% of the ’06 crop. Harvest looks to be a record one.

WHEAT in Chicago (CBOT) finished the day up with DEC’06 futures closing at $5.424/bu, up 17.0¢/bu and 48.4¢/bu higher than last week at this time. JULY’07 wheat finished at 4.640/bu, up 2.4¢/bu, but 15.0¢/bu lower than last week. The market rallied late after Canada announced that is was expecting to begin importing corn from the U.S. and halting feed wheat exports to Asia to make up for the drop in feed wheat production. In addition, concern was registered for dwindling world wheat stocks amid a persistent drought in Australia. Meanwhile, showers in the U.S. Plains boosted prospects for a U.S. hard red winter (HRW) crop while rains in Argentina helped theirs.

According to some floor sources, however, the late rally was chart driven by market-on-close buy orders and buy-stops. Funds bought 5,000 lots for the day. Volume was estimated by CBOT at 49,957 futures and 11,192 options. This was down from Friday’s 84,591 futures and 32,939 options. USDA reported weekly export inspections at 18.6 mi bu, within trade expectations of between 15-20 mi bu. It is expected that European wheat exports are likely to increase due to high prices. Iraq is rumored to be seeking to buy 100,000-150,000 tonnes (3.7-5.5 mi bu) of wheat. As stated in the soybean section of this report, it is important to note that wheat prices are closer to soybean prices than they have been in at least 30 years.

The CFTC Commitments of Traders report showed funds on Friday increasing net long positions in CBOT wheat for the week ended October 10. CFTC Commitments of Traders report for futures and options combined in Kansas City showed long funds as of last Tuesday at 48,979 lots, down 2,319 contracts and funds in short positions down 1,316 lots at 8,633 contracts. 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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5m Editor