Weekly Roberts Report: Cash sellers - Push hogs off the feeding floors

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 13 December 2006
clock icon 7 minute read

LEAN HOGS on the CME closed down on Monday with DEC’06LH futures closing at $61.775/cwt, off $0.550/cwt but $1.025cwt higher than last week at this time. The FEB’07LH closed off $0.775/cwt at $63.500/cwt. This contract was also higher than last Monday’s close by $0.750/cwt. Forecasts for lower cash hogs this week pressured prices near the beginning and never recovered from a round of selling that developed after USDA published its cash hog figures early Monday morning. The average cash hog price for Iowa/Minnesota markets was quoted at $59.03/cwt, lower by $2.29/cwt. Lower cash hogs, a good supply of hogs, and expectations of slower meat sales prior to the holidays weighed on prices. Additionally, packers are expected to trim slaughter due to narrow margins. The average pork plant margin for Monday, according to HedgersEdge.com, was estimated at $1.15/head, off $0.10/head and down $2.05/head from a week ago. Monday’s slaughter was placed at 419,000 head compared to 407,000 head last week and 403,000 last year at this time. Active spreading was noted in the February/April by the bulls and in the February/June by the bears as they tried to balance positions amid February’s technical losses. Higher cash grain did not help either. 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 ‘06 and 1st quarter ’07 pork production. Corn users should consider holding off pricing more corn inputs.

CORN on the Chicago Board of Trade (CBOT) closed higher on Monday. The DEC’06 futures contract closed at $3.554/bu, up 11.2¢/bu from Friday but 7.4¢/bu lower than this time last week. The MAR’07 futures contract finished up 2.2¢/bu at $3.706/bu. December ’07 futures were up 1.2¢/bu at $3.512/bu but 3.4¢/bu lower than one week ago. All other contracts were up a range of 1.0¢/bu – 3.6¢/bu on the day. Several floor sources stated a strong rally in CBOT soybeans provided support for corn and wheat. Expect volatility in corn futures at least through January 2007. Packed with many bullish positions, corn fell in early trading amid profit taking by the funds. However, a strong rally at the end of the day showed support in this market. USDA’s World Agriculture Supple/Demand Estimate (WASDE) report, viewed as mostly neutral, showed corn supply and use unchanged from November with ending stocks at 935 million bu, 7 million below estimates for 941 million bu. The farm gate price was raised 10.0¢/bu on both ends of the range to $2.90 - $3.30/bu. World ending stocks for corn were somewhat higher with USDA raising production estimates in Argentina by 1.5 million tonnes (59 million bu) to 19 million tonnes (748 million bu). Brazil’s corn crop is estimated at 42 million tonnes (1.7 billion bu), up 1 million tonnes (39 million bu). Exports were ho-hum over the weekend with Japan and South Korea expected to take a break from recent buying activity in U.S. corn. USDA put corn inspected for export within estimates of between 38 – 42 million bu at 40.2 million bu,. South American weather has the attention of the market during their growing season. Cash corn in the Midwest was mostly steady amid slow farmer sales. Corn in the Mid-Atlantic States was steady to somewhat higher in many places selling in the range of $3.71/bu - $3.76/bu. A high of $4.00/bu was being offered Monday at two locations in Virginia. Friday’s CFTC Commitments of Traders report showed funds in bullish positions down 7,355 lots from 330,643 lots last week. Funds in short positions were down 2,099 lots at 51,405 lots. Ethanol futures ended somewhat higher in very little trading. The JAN’07 ethanol contract closed at $2.25/gal, up 1.5¢/gal. The FEB’07 contract ended at $2.205/gal, up 4¢/gal. Corn producers selling up to 20%-30% of the ’07 crop last week may want to hold on to those positions for now. It may be wise to price any unsold portion of the ’06 crop for late December or early January delivery. This market is still very volatile. Buying a call option may be useful but remember to put a careful pencil to it before doing so.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished the day very strong on a technical bounce from last week’s setbacks. The JAN’07 soybean contract closed at $6.666/bu, up 10.6¢/bu from the last close but 7.4¢/bu higher than this time last week. The NOV’07 contract regained ground lost last week closing up 12.2¢/bu at $7.200/bu. On the chart, the JAN’07 contract tried to close the price gap established between the close of December 1 and the close of December 4. All soybean contracts finished the day up a range of 5.6¢/bu– 12.2¢/bu higher. USDA’s WASDE report is generally viewed as neutral for soybeans. An uptick in world use but increases Argentina production forecasts balanced each other out. This and the absence of any overly bearish news allowed prices to rise in profit taking by those in some short positions. Soybean supply and use for the 06/07 crop remain unchanged from last month’s estimates. However, soybean ending stocks remain at record levels. Ending stocks were placed at 565 million bu reflecting a 26% increase from the 05/06 crop! U.S season-average soybean prices for the 06/07 crop rose 30¢/bu on the low end and 10¢/bu on the high side to $5.70/bu – $6.50/bu. As with corn, weather in South America is drawing the most attention now for the developing soybean crop. There are some worries over the latest 10-day forecast for hot, dry weather. The NOV’07 contract may be forming a shoulder formation after the important high of December 1. If this market turns down in the next few days the measuring objective could be around $6.60/bu-$6.70/bu. Cash sellers should definitely consider pricing up to 50% of the ’07 crop on this rally. Hedgers should still think about short positions near $7.00/bu in the JAN’07 contract at this time.

WHEAT in Chicago (CBOT) ended higher on Monday with DEC’06 futures closing at $4.750/bu, up 6.0¢/bu but 24.4¢/bu lower than last week at this time. JULY’07 wheat finished higher by 5.0¢/bu at $4.834/bu but 17.0¢/bu lower than last Monday’s close. Sagging wheat was lifted by short-covering and the rallies in corn and soybeans. Forecasts for warm, dry weather are seen as likely depleting some soil moisture in the U.S. Plains wheat belt. USDA raised ending stocks for U.S. wheat by 20 million bu to 438 million bu due to slow exports. Exports for U.S. wheat were lowered by 25 million bu due to the slow pace of sales and higher world production. Considering all this, USDA’s report was still seen as generally neutral as the market did not find anything unexpected and seems to have already factored this news into prices. USDA also raised its estimate of world ending stocks to 120.7 million tonnes (443.5 million bu) from 118.8 million tonnes (436.5 million bu). Egypt bought 260,000 tonnes (9.6 million bu) over the weekend. USDA reported weekly export inspections of U.S. wheat at 18.3 million bu, within range estimates for 15-19 million bu. Iraq has initiated a tender for 100,000 tonnes (4 million bu) of wheat. CFTC Commitments of Traders report on Friday showed funds growing net long futures/options positions in CBOT wheat for the week ended December 5. Cash bids for the ’06 crop were firm to higher in the Mid-Atlantic States. Cash sellers may want to consider selling the remainder of the ’06 crop at these prices. It might be a good idea to forward price up to 30% of the ‘07 crop at this time. Hedgers should consider opportunities around the $4.55/bu range in JULY’07 futures.

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