Weekly Roberts Report: Market may be turning over

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 9 November 2006
clock icon 6 minute read

LEAN HOGS on the CME closed up on Monday with the DEC’06LH finishing the day at $64.525/cwt, up $0.350/cwt. The FEB’07LH closed up $0.525/cwt at $67.775/cwt. Funds initiated new buying late in the day, offsetting earlier profit taking. Hog-futures open interest was up 322 lots last Friday, setting a new record at 195,368 contracts. Some pressure was seen halfway through trading from profit taking and commercial hedging. Packers are expected to fill kill needs on Tuesday resulting in steady cash prices ahead of expected price declines later in the week.

Demand for pork is seen as slipping ahead of the Thanksgiving holiday demand increase for turkey. The average pork plant margin for Monday was estimated at $1.65/head, up $0.65/head from Friday but down $3.55/head from a week ago, according to HedgersEdge.com. USDA placed Friday’s pork carcass cutout at $67.51/cwt, up $0.02/cwt. The latest CME Lean Hog Index was $64.83/cwt, up $0.43/cwt. The 10-day moving average in nearby contracts seem to show that this market may be turning over. Cash sellers should push hogs off the feeding floors. Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users should consider pricing some near-term inputs on any market dip and selling a call at this time.

CORN on the Chicago Board of Trade (CBOT) traded unevenly on Monday with the DEC’06 futures contract closing up 1.2¢/bu cents at $3.433/bu. This was 14.0¢/bu cents higher than last Monday’s close. December ’07 futures were up 4.2¢/bu at $3.536/bu, 19.6¢/bu higher than last week. The market is anticipating lower crop production numbers in the next USDA report due out on Thursday, November 9. A fast depletion of corn supplies next year is expected as demand for corn from export, livestock, and ethanol sectors remains strong. Gains in wheat futures are also influencing this corn market.

Farmers are storing a lot of this harvest with expectations of selling at higher prices. The market is anticipating this and that is putting a damper on some of these prices. Even with that, demand is expected to outstrip production and supply unless a lot more corn acres are planted. USDA placed export inspections for corn last week at 51.9 bu, higher than the expected 40-45 million bu. Cash corn in the Midwest on Monday was mostly steady with some light selling. Cash corn in the Mid-Atlantic States opened lower again on Monday. Talking with a grower/processor in Texas late Monday it was made known that demand was still brisk for corn in the Hill Country. Friday’s CFTC Commitments of Traders report for futures and options combined had bull funds at 314,140 lots, down 12,511 from last week.

Funds in bearish positions were placed at 48,608 contracts, up 7,328 lots. At these high prices for corn, it may pay to store that unsold crop for a January-February delivery. Producers should have considered having up to 60% of the ‘06 crop sold. Buying a call option might be a good idea.

SOYBEAN futures on the Chicago Board of Trade (CBOT) traded choppy as the NOV’06 soybean contract closed up 0.2¢/bu at $6.492/bu, almost 10.0¢/bu higher than last Monday. The NOV’07 soybean contract finished at $6.994/bu, up 4.2¢/bu and 12.4¢/bu cents higher than this time last week. This market is being dragged along with corn and wheat amid fundamentals that say it shouldn’t be. One analyst was quoted as saying, “You’re just going to see these markets chop around with each other more than anything else.” Corn is expected take a lot of soybean acres out of production next year.

Export pace was slow last week on top of another round of large November soybean deliveries. USDA placed soybeans inspected for export at 38.1 million bu on Monday. This was well below the expected 45-50 million bu. USDA placed the U.S. soybean crop as 90% harvested late Monday. This was within trade estimates of 88%-91% and also within the 5-year harvest pace of 91%. Friday’s CFTC Commitments of Traders report showed funds expanding net long positions in soybean futures and options combined for the week ended October 31. Cash sellers should consider holding present price levels until they have the beans harvested. Storing may pay in the short run in some areas.

WHEAT in Chicago (CBOT) closed higher amid reports of dry weather with DEC’06 futures closing at $4.980bu, up 5.4¢/bu and almost regaining the close of this time last week. JULY’07 wheat finished at 4.764/bu, up 7.4¢/bu from Friday, 10.4¢/bu higher than last week at this time. Exports were disappointing with USDA showing on Monday that 9.8 million bu were inspected last week for export. This was below estimates of between 13-16 million bu.

Drought in China slowing yield potential and wet weather in Australia slowing harvest is supporting this market. In addition, wet, cold weather in the U.S. Midwest is slowing planting and growth while dry weather in the U.S. Plains is affecting newly planted seedlings ahead of winter. USDA said late Monday that 59% of the U.S. winter wheat crop was rated good to excellent as of Sunday. This was down one point from the previous week. The market had expected the ratings to improve rather than decline.

Friday’s CFTC Commitments of Traders report had funds in net long positions in CBOT wheat futures down 1,151 lots from the previous week at 20,375 lots. 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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