Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 15 November 2006
clock icon 5 minute read

LEAN HOGS on the CME closed off on Monday with the DEC’06LH closes at $61.225/cwt, off $1.750/cwt. The FEB’07LH closed off $1.750/cwt as well at $65.000/cwt. Both contracts offered bearish opportunities because of technical selling and bull-fund liquidation amid steady to lower cash hog prices. Even though trading was fairly active these factors pressured futures from the very beginning. February/December spreading for the Goldman Sachs Commodity Index utilized over 10,000 contracts, 6,000 of which were initiated toward the end of trading.

Hog supplies remain fairly large amid an easing cash pork complex. Seasonal demand is bullish prior to Thanksgiving. USDA placed the pork carcass cutout from Friday at $65.26/cwt, down $0.06/cwt. The latest CME lean hog index was down $0.37/cwt at $64.48/cwt. According to HedgersEdge.com, the average pork plant margin for Monday was estimated at $2.55/head, up $1.70/head from Friday’s $0.85/head and up $0.90/head from last week’s $1.65/head.

Cash sellers should continue to push hogs off the feeding floors as soon as they can be readied. Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users should consider pricing some near-term inputs on this market dip.

CORN on the Chicago Board of Trade (CBOT) finished mixed on lack of energy after an early opening surge. The DEC’06 futures contract closed virtually even with last week at this time at $3.424/bu, off 0.6¢/bu from the last close. December ’07 futures were off 3.2¢/bu at $3.414/bu. This is 12.2¢/bu lower than last Monday’s close. Poor soybean performance weighed on the market but support was found by solid outlook for U.S. corn demand.

The anticipation by the market for lower ending stocks was realized with last week’s USDA World/Supply Demand report. The sale of 110,000 tonnes (4.3 million bu) of corn to Mexico for delivery in 2006 or 2007 was confirmed. Last week’s export inspections were lower than expected at 34.5 million bu. Trade estimates ranged from 40-45 million bu. Cash bids for corn were mostly steady in the U.S. Midwest early on Monday due to slow farmer selling amid a harvest that is winding down.

Producers should have considered having up to 60% of the ‘06 crop sold. If storing is an option, corn storage may be more profitable than storing soybeans. Buying a call option might be a good idea as there is more upside potential for this corn market.

SOYBEAN futures on the Chicago Board of Trade (CBOT) traded lower as the NOV’06 soybean contract closed down 4.6¢/bu from the last close at $6.464/bu. The market showed mixed feelings on the future of bio-diesel today as the NOV’07 soybean contract was one of two contracts showing strength early on until profit taking occurred late in the day. The NOV’07 closed at $6.962/bu, down 3.0¢/bu. USDA placed inspections for soybeans higher than expected at 35.6 million bu compared to estimates of between 27-33 million bu.

The 14-day Relative Strength Indices (RSI) for both contracts was in overbought status with the November ’06 contract RSI finishing at 72.68 and the November ’07 RSI closing at 74.61. An RSI is said to be overbought when the RSI is at or above 70. At times, when supply or demand undergo dramatic changes, RSI is not the most accurate determinant of what a market is doing. The ethanol use factor for corn is one of those markets.

However, soybeans do not yet enjoy this type of dramatic supply/demand shift function and is being affected mostly by gains in feed grains. This market may not be able to hold these levels. Look for a change in the coming days as bulls seek profits and sell-stop orders gain momentum. Cash soybeans were mostly steady amid slow farmer selling. Harvest is mostly complete. Cash sellers should consider holding present price levels until they have the beans harvested. Storing may pay in the short run in some areas in the absence of corn produced on the farm.

WHEAT in Chicago (CBOT) closed mixed with DEC’06 futures closing at $4.770bu, up 3.4¢/bu and 21.0¢/bu cents lower than this time last week. JULY’07 wheat finished at 4.670/bu, unchanged from the last closing but 9.4¢/bu lower than last week at this time. Trading was thin and choppy as soybeans and corn fell off early highs. Tight ending stocks remain the key fundamental market factor but slow exports are proving disappointing.

USDA reported that 10.5 million bu were inspected for export last week compared to estimates for 12-16 million bu. It has been reported that year-to-date export inspections are down 19%. Australian production forecasts are in line with last month’s disappointing estimates. Additionally, Algeria announced today that it has enough wheat to cover upcoming needs in the nearby months. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Buying a call option may still be considered a good idea with the upside potential of this market.

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