Weekly Roberts Report

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.
calendar icon 30 January 2007
clock icon 7 minute read

LEAN HOGS on the CME closed mixed on Monday. FEB’07LH futures closed at $64.05/cwt, up $0.175/cwt and $3.100/cwt higher than last Monday. The APR’07LH closed off $1.500/cwt at $67.700 64.550/cwt but $3.150/cwt higher than last week at this time. The MAY’07LH through the OCT’07LH contracts set fresh highs. The rise in February prices was attributed to concerns for frigid weather expectations in the Midwest. Packers are expected to make every effort to ensure supplies.

These same conditions pressured prices in the APR’07LH contract amid expectations that hogs held up in February would come to market later than the February contract month. Gains were limited in the deferred months by profit taking. USDA put the pork carcass cutout on Friday at $64.72/cwt, up $0.58/cwt. The CME reported the latest lean hog index up $0.33/cwt at $61.61/cwt. The average port plant margin for Monday was estimated at $0.35/head, down $0.50/head from Friday and off $1.85/head a week ago, according to HedgersEdge.com.

Cash sellers who can get their hogs to the packers in this cold weather should continue to push hogs off the feeding floors as soon as they can be readied. Hedgers should consider positions that will protect 1st quarter ‘07 and 2nd quarter ’07 pork production. Corn users should look for more pricing opportunities in near-term corn inputs now.

CORN on the Chicago Board of Trade (CBOT) closed 2.0¢/bu - 5.4¢/bu lower on Monday due to funds taking profits and liquidating positions. The MAR’07 contract closed at $4.00/bu, off 5.4¢/bu. The DEC’07 contract finished at $3.944/bu, off 4.0¢/bu. DEC’08 futures finished down 3.2¢/bu at $3.730/bu. These three contracts finished nearly even with where they stood at this time last week. Downward momentum in U.S. crude oil weighed on corn futures. Floor sources were noted saying that the MAR’07 contract bounced back to the $4.00/bu level after briefly filling the gap established between Jan. 11 and Jan. 16. Some take this as a bullish signal for corn but the jury is still out on that thought seeing that both the Relative Strength Index (RSI) and the 4-day moving average (MA) turned down sending bearish signals.

Another notably bearish signal is that funds sold between 8,000 and 10,000 lots while buying puts and selling calls in corn options. Readers should take note that this corn market is still very volatile after reaching these 10-year highs leaving it overburdened with a lot of long positions held by large funds. One trader is stated, “Once again it got top-heavy and got set back.“ The CFTC’s Commitments of Traders report out late on Friday showed funds in long positions carrying 373,620 lots while funds in short positions weighed in at 55,490. There are certainly a lot of longs out there. There were no changes in corn fundamentals to warrant the price slide with strong demand for corn in the export, livestock, and ethanol sectors.

This is the influence of large traders taking hold. Exports were quiet over the weekend and early on Monday. USDA reported 35.9 million bu of corn were inspected for export. This is below estimates of between 38 – 48 million bu. Cash corn bids were steady in the U.S. cornbelt while turning weaker in the Mid-Atlantic States. The FEB’07 ethanol futures contract closed up 0.005¢/gal at $1.945/gal. Corn producers should have considered selling up to 30%-40% of the ’07 crop. Buying a July $4.20/bu Call option was a little cheaper today than one week ago down to 31.7¢/bu. It still may be worth considering to protect the contracted corn’s bottom side while leaving upside potential open. Profit taking by the funds today drove this market as predicted last week. Consider this market still very volatile.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed mostly down on Monday with only two deferreds up slightly. The MAR’07 soybean contract finished at $7.094/bu, off 1.0¢/bu and lower by 8.4¢/bu than last Monday. The NOV’07 closed even with Friday’s close at $7.630/bu but 0.5¢/bu off last week at this time. The more corn acres are talked up, the more support is given to soybeans. One thing that is holding up these bean prices is that corn at these price levels has been tempting farmers to plant more acres this year. USDA placed the weekly inspections data for soybeans at 37.5 million bu compared to expectations for a range of 22-28 million bu.

Nearly 18.55 million bu was earmarked for China. Dry weather in Argentina also lent support. Lower crude oil prices affected soyoil and therefore soybeans providing resistance to more upward moves in soybeans. Funds weren’t nearly as active in soybeans as they were in corn today. Funds bought only 1,000 contracts. CFTC Commitments of Traders report showed funds expanding net long futures/options positions across the entire soybean complex for the week ended Jan. 23. Cash soybeans in the U.S. Midwest were steady on Monday due to slow farmer sales. Cash soybeans in the Mid-Atlantic States were somewhat weaker by up to 2.0¢/bu. Cash sellers should still consider pricing up to 50% of the ’07 crop. Hedgers are still keeping a watchful eye for short positions near the $7.60/bu range. At the risk of sounding like a broken record … everything is still on the table for this market to go bearish.

WHEAT in Chicago (CBOT) ended down on Monday. MAR’07 futures closed at $4.564, down 7.0¢/bu from the last closing and off 8.6¢/bu from last Monday’s close. JULY’07 wheat finished off 7.0¢/bu at $4.780/bu. This is 9¢/bu lower than last week at this time. Sell stop orders kicked in early as bearish moves in options activity influenced the market from. Funds expanded net long positions in CBOT wheat futures/options by 6,600 lots making the market vulnerable to profit-taking. Good crop weather in the U.S. Plains region and expectations for a strong rebound in wheat production this year pressured this market.

Some support was seen when Egypt bought 205,000 tonnes (7.5 million bu) of which 120,000 tonnes (4.4 million bu) was U.S. wheat. Jordan tendered an offer for 100,000 tonnes (3.67 million bu) of wheat. USDA reported on Monday that the U.S. had also sold 110,000 tonnes (4.0 million bu) of wheat to an unknown destination. USDA reported 16.7 million bu of wheat were inspected for export last week. This was within expectations for between 15-20 million bu. This slowdown in US export activity is expected as the South American crop begins to enter the market. Cash bids at the Gulf ports were steady to 2.0¢/bu lower.

Cash wheat in the Mid-Atlantic States was weaker with bids running up to 7.0¢/bu lower. Even though local cash bids have come down somewhat wheat is still ranging from $3.79/bu-$4.00/bu. It still might be a good idea to forward price up to 50% of the ‘07 crop at this time to get over $4.00/bu. Hedgers on positions in the $4.80/bu range in JULY’07 futures are in good shape.

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