Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 28 November 2006
clock icon 6 minute read

LEAN HOGS on the CME closed off on Monday with the DEC’06LH closing at $62.450/cwt, off $0.525/cwt but still about a $1/cwt higher than two weeks ago. The FEB’07LH closed off $1.175/cwt at $65.750/cwt but up $0.75/cwt from two weeks ago. Cash hogs may begin to level off this week on surging grain prices.

Profit taking and fund selling in February after recent gains also took hogs lower. Concerns about large supplies were generated in the market as last week’s slaughter numbers were up 29,000 head from the previous week even though there were fewer work days at the plants. These numbers fuel expectations of more hogs on the market than previously thought. Packer margins are currently in the black amid higher kill rates but are expected to weaken in the near term.

On Friday USDA put the pork carcass cutout off $0.04/cwt at $67.27/cwt. The average pork plant margin for Monday was estimated at $4.65/head, down $2.90/head from Friday and down $7.10/head from one week ago, according to HedgersEdge.com. The latest CME lean hog index was up $0.51/cwt at $59.82/cwt. Spreaders were generally buying December and April and selling February, adding to February losses in the pit, two floor sources said late Monday.

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 hedging corn inputs at this time.

CORN on the Chicago Board of Trade (CBOT) closed higher on chart buying Monday. The DEC’06 futures contract closed at $3.714/bu, up 2.2¢/bu from Friday and 29.0¢/bu higher per bushel than this time two weeks ago. December ’07 futures were up 6.2¢/bu at $3.674/bu. This is 26.0¢/bu higher than two weeks ago. All other months settled 2.2¢/bu to 9.2¢/bu higher. The 14-day Relative Strength Index (RSI) closed at 70.14 for the DEC’06 contract.

A contract is considered overbought above 70 unless extreme supply/demand conditions are driving the market. Strong demand for U.S. corn by ethanol manufacturers, livestock producers, and corn exporters continues as funds bought over 2,000 contracts. Concerns that other major exporters such as China and Argentina may not be able to meet expectations fueled a price run-up on Monday that started last week. These factors have driven corn to 10-year highs and remain a bullish factor in the market. Export markets have picked up as U.S. corn becomes cheaper on a falling dollar.

Even though South Korea bought 110,000 tonnes (4.3 million bu) USDA reported disappointing export inspections placing the number at 33.6 million bu, well below trade expectations of 40-46 million bu. Cash corn in the Midwest and the Mid-Atlantic States was steady on Monday supported by slow sales as harvest drags out. USDA reported that the U.S. corn crop was 97% harvested on Monday. The CFTC Commodity Traders Report on Monday showed funds expanding net long futures/options positions slightly, continuing heavy bullish positions by a 5:1 margin.

Corn producers may consider selling up to 20% of the ’07 crop now. If storing is an option, storing the unsold portion of the ’06 crop 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) rallied as the JAN’07 soybean contract closed up 3.6¢/bu from the last close at $6.880/bu. The NOV’07 contract closed up 8.0¢/bu at $7.334/bu. The market held firm on Monday amid follow-through chart buying from Friday’s strength. As with corn, a weaker U.S. dollar provided market support amid expectations for more exports. Strength in soybean and other vegetable oils was a major driver in soybeans.

The market sees value in the possibility of soybeans following corn as a major energy input. Funds bought soybeans and oil in a major way. Soybean volume was big, estimated at 96,410 futures and 27,169 options traded. U.S. soybean exports have slowed from late last week compared to the futures prices. USDA put the number of soybeans inspected for export last week at 21.5 million bu, also well below trade expectations of between 30-36 million bu.

China is reported to have bought two or three cargoes of Brazilian soybeans over the weekend. CFTC placed funds slightly behind last week’s net long futures/options positions in soybeans but increasing net long positions in soyoil and soymeal futures/options. Cash sellers with any storage not holding corn should consider holding the rest of this crop for a January or February delivery. A consideration to price up to 20% of new crop soybeans (’07 crop) may be wise at this time. Hedgers should not be on short positions at this time.

WHEAT in Chicago (CBOT) ended unkindly lower with DEC’06 futures closing at $4.9020bu, down 9.6¢/bu. JULY’07 wheat finished down 10.2¢/bu at $4.920/bu. Profit taking and corn/wheat spreading weighed on the market amid a continued slow pace of U.S. exports. USDA placed weekly export inspections at 13.5 million bu compared to trade estimates for between 13-19 million bu. Year-to-date inspections for wheat were down 19% from a year ago at 401.4 million bu.

This is due to the high price of U.S. wheat on the world market. Funds sold more contracts than they bought. After declaring that it would not buy U.S. wheat a few weeks ago, India took delivery on 3.2 million tonnes (11.8 million bu) of a contracted 5.5 million tonnes (20.2 million bu) after reports of its poor crop were in. Volume was estimated by the CBOT at 68,852 futures contracts and 8,814 options. Both categories were almost double that of Friday’s totals.

Late Monday after the close of the markets, USDA placed the U.S. winter wheat crop in good to excellent condition at 53%, down 4% from the last report. Declines in the crop were particularly noted in Kansas, Oklahoma, and Texas due to dry conditions. The CFTC Commitments of Traders report showed funds reducing net long positions in CBOT wheat for the week ended Nov. 21. 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.

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