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Weekly Roberts Report: Lean Hogs Bounce Mildly

by 5m Editor
16 January 2008, at 12:55pm

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

LEAN HOGS on the CME bounced up mildly on Monday. FEB’08LH futures were up $0.100/cwt at $54.10/cwt but still $1.600/cwt lower than a week ago. The APR’08LH contract closed at $63.125/cwt, up $0.875/cwt and $1.675/cwt higher than last Monday. The remote deferreds were up again with some posting contract highs as the market guessed higher corn will lead to herd selling. If that happens, that will mean less hogs in the supply chain late into 2008 and early 2009. A couple of floor sources said they were “feeling” the bottom.

Funds rolled contracts on the ninth trading day which brought the February under pressure while supporting the April contract. Funds rolled over 10,000 contracts with 6,000 of those coming late in the day. Export news was helpful with the U.S. Meat Export Federation reporting last week that through November 2007 pork exports were up about 3% over the same period last year.

Cash hogs were steady as pork plants kept the current processing pace at or near capacity while the margins are good. According to HedgersEdge.com, the average pork plant margin for Friday was near $15.85/head, $0.85/head lower than last Thursday but $2.35/head better than a week ago. USDA put the pork cutout value on Friday at $55.54/cwt, down $0.15/cwt and the lowest it’s been since December 24, 2003. The latest CME Lean Hog Index was placed at $48.27/cwt, off $0.23/cwt. If corn inputs are hedged and plentiful, cash sellers should try and hold sales to heavier weights.

CORN on the Chicago Board of Trade (CBOT) gapped up tremendously on Monday. The MAR’08 contract finished up 17.0¢/bu at $5.120/bu, 45.8¢/bu (9.8%) higher than a week ago. The DEC’08 contract closed up 17.2¢/bu at $5.304/bu, 44.8¢/bu (9.2%) over last Monday’s close. All contracts settled above $5.00/bu. Friday’s limit up closing, a weaker dollar (higher crude oil and gold), and fund buying provided the momentum. Profit-taking limited the up-side.

Fundamentally speaking corn was supported by a very bullish USDA World Agriculture Supply Demand Estimate (WASDE) report as it emphasized shrinking U.S. corn supplies. Exports were supportive in light of cheaper U.S. corn. USDA put corn-inspected-for-export at 50.5 mi bu vs. expectations for between 34-38 mi bu. South Korea bought 116,000 tonnes (4.57 mi bu) of U.S. corn, Israel bought 40,000 tonnes (1.57 mi bu), and Taiwan is expected to tender for up to 35,000 tonnes (1.38 mi bu) of U.S. corn on Wednesday of this week. Some are projecting 2008 U.S. corn plantings will shrink by up to 6% to 88.0 mi acres, down 5.6 mi acres from 2007. Productive rains on Argentina’s corn crop last week were considered too late to help their corn crop recover.

Funds bought over 4,000 lots while the CFTC Commitment of Traders report showed bullish funds increasing positions in CBOT corn by 11,000 contracts to 244,620 lots. Cash corn bids fell somewhat in the U.S. Midwest as farmers filled elevators with the valuable crop. Cash bids for corn in the U.S. Mid-Atlantic States were firmer amid slow farmer selling. If you have any of the ’07 crop left, it would be a very good idea to sell it. It could be a good consideration to price another 10% of the ’08 crop now bringing it to 40% priced.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were mixed on. The JAN’08 contract finished at $12.970/bu up 11.0¢/bu and 61.0¢/bu higher than a week ago. The NOV’08 soybean contract ended at $12.630/bu, up 18.0¢/bu and 95.6¢/bu higher than last Monday. JULY’08 futures finished at the highest level, $13.32/bu while the March and May ’08 contracts closed down from Friday on profit taking.

This market is mildly confused as 2008 bids for acres against corn and nearby contracts fall off because there are plenty of soybeans. The weaker dollar and funds flush with speculative money have everything to do with this situation. The markets were measured in technical terms but traded on emotion today. That is, many traders voiced fears that corn’s surge would cut into 2008 soybean seedings and they were trying to take advantage of those who would trade the rumor instead of the facts. Weather patterns in Argentina’s soybean growing regions were supportive even though rain is predicted for this weekend. Celeres analysts put Brazil’s ‘07/’08 soybean crop at 59.1 mi tonnes (2.3 bi bu). This was off 5% from the December estimate of 62.3 mi tonnes (2.45 bi bu). Even though Indonesia abandoned a 10% import tariff USDA reported disappointing soybean-inspected-for-export numbers placing them at 21.883 mi bu vs. expectations for between 23-28 mi bu. Brazil is set to be the number 1 world soybean exporter for 2008. I will go out on a limb here and predict that soybeans will hit $15.00/bu before this run up is done. U.S. soybean plantings for 2008 were predicted at 69.5 mi acres, up 9% from 2007 as soybeans continue to bid for a place to grow.

The CFTC Commitment of Traders report had bull funds cutting positions in CBOT soybeans by 4,400 contracts to 116,086 lots. Cash soybeans were weaker in the U.S. Midwest after producers filled local elevators last Friday. Old crop cash soybeans in the U.S. Mid-Atlantic States were firm while new crop beans surged. It might be a good idea to consider staying with 40% of the ’08 crop priced and speculate with the rest for now.

WHEAT futures in Chicago (CBOT) gained ground on Monday. The JULY’08 contract closed at $8.360/bu, up 30.0¢/bu while 32.0¢/bu higher than last week at this time. Mar’08 futures and May ’08 closed over $9.00/bu at $9.17/bu and $9.34/bu respectively. Deferreds closed limit up, while profit-taking cut gains in the front months. USDA put the market in a spin last Friday with a smaller-than-expected 2008 seeding rate. Here in Virginia that does not look like the case. While on a trip to the Virginia Peanut Grower’s meeting this morning I saw nothing but wheat fields where normally at least half of those fields would be standing fallow waiting on corn, peanuts, or cotton seedings later this spring.

USDA reported wheat-inspected-for-export at 21.371 mi bu. vs. expectations for between 16-20 mi bu. The American Farm Bureau Federation projected all 2008 U.S. wheat plantings to increase by 7% from 60.4 mi acres to 64.5 mi acres in 2007. Argentina’s wheat harvest is drawing down as yields still indicate production of 15.2 mi tonnes (588 mi bu). The CFTC Commitment of Traders report showed funds cutting bear positions in CBOT wheat by 2,600 contracts to 8.731 lots. Priced at 40% of the ’08 crop is a good place to be. It wouldn’t hurt the bottom line to sell another 10% on a Hedge-to-Arrive contract.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) closed mostly lower on Monday. FEB’07LC futures finished off $0.450/cwt at $90.900/cwt but and $3.700/cwt lower than last Monday. The APR’08LC contract closed at $95.200cwt, off $0.300/cwt while the JUNE’08LC contract finished up $0.40/cwt at $94.500/cwt. Surging grains and bear spreading provided the pressure. Bear spreading is selling the nearby contract while buying a deferred one. The February was pushed to a 13-month low while the April’09 contract posted a contract high. Lower cash cattle and expensive corn got the selling going. On Monday USDA’s 5-area cash cattle price was off $3.00/cwt from the previous week. USDA put the choice boxed beef cutout at $148.30/cwt, down $0.48/cwt. One floor source said there was some thinking in futures today that said “higher corn prices today, fewer cattle in 2009.” There was also talk by some analysts that even though feed prices are high, some producers would be expanding herd numbers ahead of an expected price uptick because fewer cattle will be in feedlots. We’ll see.

Also pressuring prices were funds rolling into the April and June. Funds rolled about 12,000 lots on Monday with 8,000 of those coming in a flurry at the end of the day. If you have the corn, cash sellers should sell cattle only when ready. Try and offset corn inputs with hedges.

FEEDER CATTLE at the CME were down on Monday. JAN’08FC futures closed under $100.00/cwt at $98.425/cwt, off $1.075/cwt and $2.00/cwt lower than a week ago. The MAR’08FC contract finished at $101.45/cwt, off $1.050/cwt and $2.650/cwt behind last Monday’s close. Feeder losses were paced inversely with the CBOT corn rally even gaining somewhat at the close as corn slipped late. Looks like feeders traded strictly opposite corn today.

Feeder supplies are plentiful right now because wheat is more valuable to harvest than to graze amid slack feedlots demand. Cash feeders kept pace with last week’s weakness trading $3-$5/cwt lower in Oklahoma City auctions. The latest CME Feeder Cattle Index for January 10 was placed at $98.82/cwt, down $0.03/cwt and the lowest since February 28, 2007. Feeder sellers should hold cattle with hay if possible.

April 2008 Lean Hogs, January 14, 2008
Data by DTN on the Web

5m Editor