Roberts Report: Feed Grains May Rally, But Pigs Still Abundant

US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.

Due to the Holidays there won’t be a market report for the next two weeks - I plan on spending some very good time with my wife, children, and grandchildren!

Of note for the New Year, is are six, very exceptional outlook meetings in Virginia during the last two weeks of January. The venues, times, speakers, and topics can be viewed at the URL: http://www.cpe.vt.edu/agoutlook

Programs include the latest and greatest from experts around the country on:

The US Economy,
Grains & Oil seeds
Cotton, Peanuts,
South American Soybean
Cattle Outlook, and others.

You won’t want to miss one, several, or all of these seminars to gain insights on regional and national economic outlook. The cost is minimal. You can sign up via the web, contacting me, or by calling into our Extension office. Space is limited.

FARM BILL 2007 (or ’08):

On another topic not usually seen in this report is the farm bill. On the heels of a new Energy bill, the Senate passed its version of a new $286 billion farm bill last Friday, December 14th on a 79-14 vote. The Senate version generally keeps current commodity and conservation programs in place. Senate leaders passed the bill after throwing out certain amendments to avoid taking work into the holidays. The House version of a farm bill was passed back in July. The President has promised to veto the legislation as a budget buster. One component kept in the Senate version of the bill would restrict packer ownership, feeding, and otherwise controlling livestock more than 14 days prior to processing. The House version doesn’t include this requirement. Also included in the Senate bill is language that reduces producer paper for mandatory country-of-labeling (COOL) while adding additional language that includes poultry to the mandatory reporting requirement. The bill allows all cattle in the US as of January 1, 2008, to qualify for a US origin label. The bill will now go into conference where it will be distilled to a product that will then be sent to the President for signature (or not). These formal negotiations are not expected to take place until everyone is back at work after the holidays (mid-to-late January, 2008). Good luck.

CORN on the Chicago Board of Trade (CBOT) closed up Monday on moderate volume, chart based buying and spillover strength in overnight trading. The MAR’08 contract finished up 0.4¢/bu at $4.386/bu and 21.0¢/bu higher than last Monday. The DEC’08 contract finished even with last close at $4.504/bu, but 10.8¢/bu over last Monday. Fundamentally speaking everything was pretty quiet. Overnight, the March contract made $4.414/bu, the highest for a spot contract since 1996. In export news, fears of rising domestic food prices caused China to discard its policies encouraging corn, wheat, rice, and soybean export via tax rebates. South Korea issued a tender to buy up to 165,000 tonnes (6.5 mi bu) of non-Genetically Modified Organism (GMO) corn. USDA placed corn inspected for export at 46.589 mi bu vs. trade expectations of between 41-45 mi bu. There were some stops amid heavy deliveries of corn against the expired December contract. Funds were almost even for the day as the CFTC Commitment of Traders report showed large speculators growing net bull positions by 12,000 lots to 187,800 contracts. The only corn contract Relative Strength Index (RSI) that is not oversold is the DEC’09 contract. Corn looks like it could be in for a major top like wheat experienced today. It might be a very good idea to get the ’07 crop sold this week. Additionally, it might be a good idea to price up to 30% of the ’08 corn crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were mixed on Monday as some contracts fell on profit taking and chart based selling. Falling wheat and no fresh fundamental news were major influencers. Soybeans can expect a rally closer to planting in a bidding war for acres with corn. The JAN’08 contract finished at $11.566/bu off 0.2¢/bu but 31.0¢/bu higher than last Monday. The March, May, and July contracts were up while the NOV’08 soybean futures ended at $10.472/bu, off 4.0¢/bu, and $1.072/bu lower than a week ago. Dry weather in Argentina and forecasts for more of the same were of mild concern while good feed demand in soybean meal was supportive. Reports from Argentina show good soil moisture for soybean sprouting amid concerns for a La Nina weather pattern that hold the promise of extended drought later on. South Korea sought to buy 150,000 tonnes (5.1 mi bu) of non-GMO soybeans. In bullish news, early on Monday USDA put soybeans inspected for export at 35.561 mi bu vs. expectations for between 27-32 mi bu. China bought 75% of that. Funds were about even in soybeans with the CFTC Commitment of Traders report showing funds in net bull positions at 137,780 lots, up 14,400 contracts. Looks like a major top might have been reached in these overbought conditions. It might be a very good idea to consider pricing up to 40% of the ’08 crop.

WHEAT futures in Chicago (CBOT) sagged on Monday amid profit taking, technical selling, and after a huge overnight volume took it to tremendous heights. Over 30,500 contracts were traded overnight while daytime volume in CBOT wheat was estimated at 119,049 futures and 24,064 options. MAR’08 futures were off 14.4¢/bu at $9.660/bu. The JULY’08 contract closed at $7.704/bu, off 17.4¢/bu and 54.0¢/bu lower than a week ago. The 2008 crop contracts were pressured amid expectations for a large increase in the U.S. and world wheat plantings and improving weather in the southern U.S. Plains. There was just not much in regard to big fundamental changes as the rally in wheat was fueled by technical buying and short-covering. However, world stock numbers continue to support the market amid 30-year lows forecasted by the end of the ‘07/’08 market year on May 31. World stocks are projected to end at 110.06 mi tonnes (4.04 bi bu). Exports were bearish as USDA placed wheat inspected for export at 19.455 mi bu vs. expectations for between 20-25 mi bu. However, bullish influences on the market today were that India’s tender last week attracted very few offers and Russia is expected to limit or stop exports. Cargill was the lowest bidder to sell India wheat offering 65,000 tonnes (2.39 mi bu) at $459.90/tonne ($12.52/bu). Funds were pretty much in net short positions in CBOT wheat as net bear positions increased 2,300 contracts to 15,261 lots. It was suggested last week to see up to 40% of next year’s crop. That is still a good idea as there remains good upside potential on this short world supply.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed up on Monday with deferreds off. DEC’07LC futures finished up $0.275/cwt at $92.875/cwt but $1.525/cwt lower than last week at this time. The FEB’08LC contract closed at $95.625/cwt, up $0.150/cwt but $1.500/cwt lower than last Monday. Higher wholesale beef prices were supportive early Monday. Cash cattle can expect firm prices if further gains are posted in futures. USDA’s 5-area price was about $0.50/cwt lower this week over last at $92.68/cwt for steers and $92.56/cwt for heifers. USDA reported the choice beef cutout at $151.69/cwt, up $2.90/cwt. Some processors alerted sellers they were thinking about cutting production later in the week. USDA placed estimated slaughter at 95,000 head last week compared to 130,000 head a week ago and 121,000 head last year at this time. Even though packers are taking steps to cut back some of that reduction was not on purpose and could be blamed on the winter weather. According to HedgersEdge.com, the average beef plant margin for Monday was estimated at a negative $35.95/head, $11.30/head better than last Friday and $10.80/head better than a week ago. Cash sellers should take profits on these rallying prices. Corn prices are due for a major break if on nothing else but technical selling. If you have to buy corn, buy it; just don’t buy too far out. Try to price on the technical breaks.

FEEDER CATTLE at the CME were up on Monday with exception of January ’08 futures on strength in live cattle. JAN’08FC futures closed at $103.675/cwt, off $0.125/cwt and $2.450/cwt lower than last Monday. The MAR’08FC contract finished at $106.325/cwt, up $0.150/cwt but $1.375/cwt lower than a week ago. The January contract was pressured by a dramatic drop on Friday in CME cash feeder cattle prices. The CME composite price is the official cash settlement price for CME feeder cattle futures. Figures are calculated by the CME from prices reported by USDA. The 7-day average CME prices and settlement dates for 650-849 lb feeders are in the table below.

Feeder sellers should consider selling cattle on these upticks. You might consider holding off on feed purchases except when corn breaks on technical selling.

LEAN HOGS on the CME were down on Monday. FEB’08LH futures were off $0.925/cwt at $59.250/cwt and $4.100/cwt lower than a week ago. The APR’08LH contract closed at $64.500/cwt, off $0.700/cwt. The market is expecting USDA to show on December 27 that herd building continues with about 2% more hogs on U.S. farms that a year ago. Cash hogs were weaker on Monday amid expectations for more of the same on Tuesday. Pork plants have been able to pick and choose what they want to buy amid an abundant supply. USDA on Monday said that cash prices in the Iowa/Minnesota markets were at $53.42/cwt, off $1.30/cwt. Cash sellers should still keep sales current. The old saying in the swine industry that the first hog at the trough gets its belly full still holds true. Try to catch dips in feed prices to price near term inputs. Grains are expected to rally after January as corn and soybeans compete for planted acres.