Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 1 November 2006
clock icon 6 minute read

LEAN HOGS on the CME closed up across the board on Monday with the DEC’06LH finishing the day at $60.250/cwt, up $0.675/cwt. The FEB’07LH closed up $0.475/cwt at $67.90/cwt. All but the December posted contract highs with that month posting a 7 week high. Hogs moved higher on chart based buying by the funds.

Buy stops in the December were increased after that contract moved above $65.00/cwt. Some pressure on prices was seen as hedge selling on the premium to the CME Lean Hog Index took place. Futures normally trade at a discount about this time of year. USDA put the pork carcass cutout on Friday at $67.36/cwt, up $0.30/cwt. The latest CME Lean Hog Index was $62.41/cwt, down $0.03/cwt. Steady to higher cash hogs and a higher pork cutout reported from Friday provided some market support.

Packers are still showing good demand for lighter hogs as they are proving profitable. According to HedgersEdge.com, the average pork plant margin for Monday was around $5.0/head, down from $3.06/head on Friday but up from $4.80/head last week at this time. Cash sellers should push hogs off the feeding floor as packers find lighter hogs profitable. Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users should consider pricing some near-term inputs at this time.

CORN in Chicago on the Chicago Board of Trade (CBOT) finished lower a range of 1.6¢/bu- 4.2¢/bu with the DEC’06 futures contract closing at $3.294/bu, off 3.0¢/bu from the last close but 11.2¢/bu higher than last Monday. December ’07 futures were off the most at $3.340/bu, down 4.2¢/bu. The market is seen as being corrective coming off chart-overbought conditions. The 14-day Relative Strength Index RSI) is still above 70 finishing at 74.64. A contract is considered overbought at 70 or above and oversold at 30 or below. The RSI is considered to be the most important thing that can bring discipline to a trading program. Jumping in and out of trades in a panic can be avoided when a market is technically showing a rally or turning point.

RSI guidelines become somewhat self fulfilling if a significant portion of traders are looking at them. If, on the other hand, a fundamental supply/demand situation changes significantly and continues to change without let up, the market will not behave as the RSI indicates it should. However, sooner or later, new supply/demand factors will begin to be incorporated into market data and correction will at least be attempted. The corn market is trying to factor in ethanol demand to a certain degree. Chart traders are gladly obliging. Harvest pressure and heavy net-long positions held by funds have left the market in a vulnerable position for setbacks. Floor sources spoken to today still think the bulls are in charge citing good demand for corn amid diminishing global feed grain supplies.

USDA reported weekly export inspections within trade estimates of 37-43 million bu, at 40.2 million bu. Corn harvest for the 2006 crop is coming to a close amid dry weather forecasts for the rest of the week. USDA’s weekly crop progress report showed the U.S. corn harvest slightly ahead of estimates at 78% complete as of late Monday. Cash corn was steady in the Midwest while steady to higher in the Mid-Atlantic states. Friday’s CFTC Commitments of Trader’s report showed funds expanding net long positions in CBOT corn to 225,573 contracts for the week ended October 24. Producers should consider having up to 60% of the 2006 crop and 30% of the 2007 corn crop priced.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday on chart-based buying. NOV’06 soybean futures closed up 4.2¢/bu at $6.396/bu and 22.2¢/bu higher than last Monday. Deferreds were 4.2¢/bu to 10.0¢/bu higher. The NOV’07 soybean contract finished at $6.870/bu, up 7.0¢/bu and 20.1¢/bu cents higher than where it was last Monday. Demand for ethanol, increased demand for soy oil for bio-diesel, and higher crude prices supported the market. However, the 14-day RSI for NOV’06 soybeans finished the day way oversold at 76.48. Funds bought between 4,000 and 5,000 lots.

The demand function for beans is more of a perception rather than a reality as it follows corn. This market seems to be driven more by perception than true demand. There are plenty of global stocks of soybeans. Look for a correction in the November contract if the 4-day moving average and the RSI diverge from this uptrend. Amid quiet weekend exports, USDA reported on Monday that export inspections stood at 48.6 million bu, above trade estimates of between 25-30 million bu. The weekly crop progress report, issued late Monday, showed the U.S. soybean harvest ahead of estimates at 91% complete.

Cash soybeans were bidding steady in the Midwest but higher in good demand in the Mid-Atlantic states. Friday’s CFTC Commitments of Traders report showed funds increasing long positions in CBOT soybeans to 30,782 lots for the week ended October 24. Cash sellers should consider holding present price levels until they have the beans harvested.

WHEAT in Chicago (CBOT) closed lower on profit taking with DEC’06 futures closing at $5.010bu, down 7.4¢/bu since the last close and 16.0¢/bu lower than last week at this time. JULY’07 wheat finished at 4.660/bu, up 0.4¢/bu, and 3.0¢/bu lower than last week. Declining wheat stocks supported prices. As funds and other large speculators enter and exit the market price volatility is expected to continue. Funds sold between 1,000 and 2,000 contracts. Australia is still hurting for rain to halt the continued slide of yield potential.

Rain was helpful for U.S. crop prospects. Export inspections reported by USDA were placed at 11.7 million bu, below trade estimate ranges of between 15-20 million bu. In export news, Taiwan is expected to make a tender on Wednesday for 93,150 tonnes (3.4 million bu). India is importing wheat while raising government program support payments to encourage Indian wheat producers to produce more wheat. Friday’s CFTC Commitments of Trader’s report showed funds increasing net long positions in CBOT wheat for the week ended October 24. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Buying a call option may still be considered at this time.

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