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Weekly Roberts Report

by 5m Editor
27 February 2008, at 9:23am

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

LEAN HOGS on the CME were the big losers on Monday. APR’08LH futures were off $3.000/cwt (limit down) at $60.500/cwt; $4.575/cwt lower than two weeks ago. The MAY’08LH contract closed at $70.750/cwt, off $2.200/cwt. After falling in opening bids amid huge stocks, lean hogs did not recover from fund liquidation on technical selling. Lower cash hog prices only made things worse. These were fueled by more than enough live supplies and low packer margins. According to HedgersEdge.com, the estimated breakeven price for hogs on Monday was $43.23/cwt, or about $0.30/head less than what packers had to pay to get the hogs. On Friday, USDA put the pork cutout value at $60.68/cwt, off $0.29/cwt. The CME Lean Hog Index was placed at $60.26/cwt, even with the last report but still the highest since September 28. A couple of weeks ago this report said that prices may not hold if warmer weather comes as predicted and loosens supplies. That happened. It might be a good idea to hedge corn inputs at this time or at least sell put options.

CORN on the Chicago Board of Trade (CBOT) soared on Monday. The MAR’08 contract finished up 11.0¢/bu at $5.332/bu; 29.8¢/bu (5.9%) higher than two weeks ago. The DEC’08 contract closed up 7.0¢/bu at $5.572/bu; 32.0¢/bu (6.1%) more than Monday before last. Corn is at record levels trying to hold on to acres for spring planting. One floor source said, “As long as big fund money keeps pouring in buying commodities we’re going higher and food prices are going to get really expensive.” Volume was huge at 373,805 futures and 73,709 options. Even though funds bought an estimated 12,000 contracts most of that were spreads as Index funds rolled March positions before the first notice of the ending February contract. Exports did well as 46.63 mi bu of corn was inspected for export vs. expectations for between 40.0-45.0 mi bu. In weather news, heavy snows in the U.S. Midwest have contributed good soil moisture for spring plantings as Argentina’s weather continues to be spotty at best. Argentina is the No. 2 corn exporter behind the U.S. Friday’s CFTC Commitment of Traders report showed large speculators in very bullish positions at 328,541 contracts, up 11,783 lots. Bearish positions for some large speculators were placed at 73,403 contracts, down 6,938 lots. It probably is a good thing not to price any more corn for the time being. Corn is looking more golden now than ever before. If you’re worried about a falling market for December ’07 corn anytime soon you could spend 65.0¢/bu for an at-the-money put … however, that is really expensive and corn would have to lose as much as 12% of its value to warrant that. The market is saying it just doesn’t think that is going to happen.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were up on Monday. The $64.00 question from the last report seems to have been answered … this market has more room for upward movement. The MAR’08 contract finished at $14.520/bu up 32.0¢/bu and up $1.26/bu (9.5%) from two weeks ago. The NOV’08 soybean contract ended at $14.170/bu, up 26.4¢/bu and $1.35/bu (10.5%) over Monday before last. China’s population is demanding greater volumes of soyoil amid shortages of palm oil and edible oils in other countries. In addition, the Olympics are seen as one of the drivers behind the increased Chinese demand for food in that country. USDA placed soybeans inspected for export at 23.858 mi bu, below expectations for between 27.33 mi bu. Some weather concerns were noted in Brazil’s soybean growing regions. In one place it was too dry, in another, too wet. Speculative money flooded into commodities amid outlook for greater food demand. As with corn futures, soybean futures volume was also large. Estimated trading was noted at 195,571 futures and 67,308 options. Index funds bought about 7,000 soybeans contracts. The CFTC Commitment of Traders report showed large speculators expanding net bull positions in soybeans. Index funds were noted as holding a record net long position in CBOT soybeans of 198,707 lots. It still might be a good idea to consider holding off pricing any more of the ’08 crop if you are at 30%-40% priced. As noted earlier in this report, $15.00/bu beans are most likely not out of the question.

WHEAT futures in Chicago (CBOT) were limit up on Monday. Will CBOT wheat futures go to the 90.0¢/bu limit on Tuesday? Mar’08 futures closed at $11.094/bu, up 60.0¢/bu; 61.4¢/bu (5.7%) higher than two weeks ago. The JULY’08 contract closed at $10.464/bu, up 60.0¢/bu and 67.4¢/bu (6.9%) higher than Monday before last. U.S. spring wheat at the Minneapolis Grain Exchange went over the $20.00/bu level to a record $25.00/bu on Monday. Limits were set when Kazakhstan imposed export tariffs amid worries over shrinking world stocks. That country’s Agriculture Ministry stated Sunday it has sold about 75% of its wheat and will protect the remaining 25% (~110 mi bu) with customs duties. Traders also took into account historic levels of bad weather as country after country reported wheat growing problems. In light of growing shortages, Canada announced it expects its 2008 all-wheat crop to increase by 25% or 5.109 mi tonnes (188 mi bu) from the 2007 20.054 mi tonne (737 mi bu) level. Surging demand for food products in quick-growing countries, including China and India, has magnified the short supply situation for world wheat. Wheat has more than doubled in price over the last year. The latest buzz is that U.S. consumers won’t feel the crunch too quickly as big U.S. food companies normally lock up long-term supplies. However, if this keeps up, higher prices are to be expected. USDA put wheat inspected for export at 17.253 mi bu vs. expectations for between 18-22 mi bu. The CFTC Commitment of Traders report as of last Friday had large speculators decreasing net short positions in CBOT wheat by 1,500 contracts to 252 lots. It is still not advised to have more than 40% of the ’08 crop priced. It also wouldn’t hurt to see if 10% of the 2009 crop and 10% of the 2010 crop could be priced at this time.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were up on Monday. FEB’07LC futures finished up $0.600/cwt at $92.600/cwt; $0.430/cwt higher than two weeks ago. The APR’08LC contract closed at $94.825/cwt, up $0.850/cwt and $0.725/cwt higher than Monday before last. JUNE’08LC futures were up $0.625/cwt at $95.025/cwt. Good demand for cash cattle and a good report last Friday drove the market. Technical buying fueled gains amid local selling half way through the trading day. Friday’s Cattle on Feed report is seen as bullish for later months because January placements were up about 6% instead of the expected 9.5%. USDA put the February 1 Feedlot supply at 11.966 mi head, up 2% from a year ago and the second largest February supply since 1996. The market had expected as much and was able to move higher amid stronger cash cattle. USDA’s 5-area price was up $0.50/cwt to $91.57 on Monday. As long as margins are in the black, packers can pay more for cash cattle. USDA on Monday put the choice boxed beef cutout at $148.60/cwt, up $0.39/cwt. According to HedgersEdge.com, packers netted an estimated $7.40/head on Monday with the estimated breakeven set at $91.56/cwt. Cash sellers should hold cattle and sell only when cattle are ready. It might be a good idea to hold off pricing corn inputs at this time unless you want to do some hedging with the nerve for margin calls … or … you might sell some put options.

FEEDER CATTLE at the CME were up on Monday with the exception of the May ’08 and the January ’09 contracts. MAR’08FC futures closed at $104.200/cwt, up $0.275/cwt but $1.700/cwt lower than two weeks ago. MAY’08FC futures were down $0.150/cwt $110.500/cwt; $2.550/cwt lower than Monday before last. Feeders were mostly firm at the end due to short covering, a rise in cash live cattle prices, and March/April bull spreads. Feeder supplies are still pretty tight even though there were a fair number of feeders at the closely watched Oklahoma City feeder auction,. The latest CME feeder cattle index for February 22 was placed at $103.86/cwt, up $0.12/cwt. It might be a good idea to hedge corn inputs at this time or sell a put option or two.


5m Editor