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Weekly Roberts Report:: Speculation Urged When Grain Buying

by 5m Editor
6 February 2008, at 9:00am

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

LEAN HOGS on the CME closed up on Monday with the exception of the nearby February ’08 contract. FEB’08LH futures were off $0.100/cwt at $59.775/cwt but $2.525/cwt higher than a week ago. The APR’08LH contract closed at $67.200/cwt, up $0.525/cwt and $3.700/cwt higher than last Monday’s close. Fund buying in both near-term futures and deferreds was the name of the game. Funds ran prices up on strong chart signals on the far end. Weekend snows in the hogbelt slowed transport to the packers on Monday and was supportive of cash prices. Cash hogs are expected to continue to make money through Wednesday as packer demand remains brisk. Packer margins are still in the black as HedgersEdge.com reports the average pork plant margin for Monday was estimated at $8.90/head. This level was $2.35/head lower than last Friday but $3.25/head higher than a week ago. On Friday, USDA put the pork cutout value at $60.72/cwt, down $0.62/cwt. The latest CME Lean Hog Index was placed at $54.05/cwt, up $0.20/cwt. Prices are expected to be a little better near the end of this week.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were up on Monday with the exception of the April ’08 contract. FEB’07LC futures finished up $0.300/cwt at $90.525/cwt but $0.225/cwt lower than last Monday. The APR’08LC contract closed at $93.925cwt, off $0.125/cwt but $0.100/cwt over a week ago. Short covering and long funds were supportive. Reports of lower cash cattle early on Monday were countered when smaller showlists and higher beef prices encouraged packer demand. Packers wanted to bid down prices because of negative margins but are seen as limited in the ability to do so. According to HedgersEdge.com, the average beef plant margin for Monday was estimated at a negative $20.55/head, even with last week at this time but $2.20/head worse than last Friday. Pressure was put on the market because of long liquidation ahead of the delivery date. However expectations for no deliveries were noted and that is seen as supportive. USDA on Monday put the choice boxed beef cutout at $144.77/cwt, up $0.61/cwt. This level was noted as the highest since October 18, 2007. Even as USDA’s 5-Area cash-cattle prices for Monday, February 4 were noticeably off $0.50-$0.75/cwt to $89.50/cwt; the market is still expected to see better beef prices later this week. Cash sellers should hold cattle until the end of this week if possible. It might be a good idea to hold off pricing corn at this time unless you can catch prices when the local elevators have plenty. This volatility will continue until the U.S. crop is planted as corn wars with soybeans for planted acres.

FEEDER CATTLE at the CME were off on Monday. MAR’08FC futures closed at $104.750/cwt, down $0.700/cwt but $2.075/cwt higher than a week ago. Feeders remained under pressure all day because of climbing corn futures and higher-than-expected cattle inventory numbers in last Friday’s USDA semi-annual Cattle Inventory report. However, the report did show the 2007 calf crop at its lowest level since 1951. Feeders sold off in large part because of the rally in corn despite firm cash feeder markets and good chart signals. The latest CME Feeder Cattle Index for January 31 was placed at $99.630/cwt, up $0.21/cwt. Feeder sellers should consider selling cattle later in the week while hedging future stocker purchases. This market is due for an uptick after the U.S. crops get planted.

CORN on the Chicago Board of Trade (CBOT) closed up on Monday. The MAR’08 contract finished up 10.0¢/bu at $5.104/bu and 12.2¢/bu over a week ago while holding above major moving averages. The DEC’08 contract closed up 14.0¢/bu at $5.330/bu and 22.6¢/bu higher than last Monday. Soybean gains, continuing strength in the wheat market, and fund buying proved supportive. Rising crude oil prices, as well as brisk export demand also lent support. USDA placed corn-inspected-for-export at 33.348 mi bu for the week ending February1. A weak dollar aided exports for U.S. corn, keeping them brisk amid reports that Japan bought 121,920 tonnes (4.8 mi bu) U.S. corn. Funds bought 15,000 contracts while Friday’s CFTC Commitment of Traders report showed as of last Tuesday, funds in bullish positions were down 12,409 lots to 305,312 contracts. Those in bearish positions retracted 2,362 contracts to 81,744 lots. It might be a good idea to forward contract 10%-20% of the ’08 crop. Options are a little pricey to use right now but if so inclined an out-of-the-money call option might not be too bad of an idea.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were up on Monday on strength from wheat and expectations for shrinking U.S. ending stocks. U.S. soybean exports are expected to pick up. The MAR’08 contract finished at $13.260/bu up 38.6¢/bu and 72.4¢/bu higher than this time last week. The NOV’08 soybean contract ended at $12.944/bu, up 40.4¢/bu and 62.4¢/bu over a week ago. Follow-through speculative fund buying fueled bullish technical energy while prices across the board chased soaring wheat futures. Weather concerns for the South American crop were supportive. Wet weather in northern Brazil and dry weather in southern Brazil was seen as wreaking havoc on the crop there. Argentina received much needed rain on its soybean crop. Speculative funds were buy-happy today with no bearish pressure in sight. Funds bought nearly 4,000 lots. It might be a good idea to consider pricing up to 20% of the ’08 crop while keeping the rest to speculate with.

WHEAT futures in Chicago (CBOT) roared higher on Monday with many contracts up the limit. Mar’08 futures closed limit up at $9.730/bu and 10.0¢/bu higher than a week ago. The MAY’08 contract was nearly up the limit, closing at $9.896, up 29.2¢/bu. The JULY’08 contract closed at $9.044/bu, up 30.0¢/bu but off 3.6¢/bu from a week ago. The September ’08 through May ‘09 wheat contracts were also limit up. The markets have taken on a bullish attitude thinking that soybeans will not be able to go high enough to buy acres from corn. Many reports are now estimating that wheat ending stocks will become so low that demand rationing by high prices will kick in or spring wheat supplies will run out before the next harvest gets cranked up in August. Global wheat stocks are expected to rise somewhat because of a surge in wheat plantings by other countries. Meanwhile, buying by the funds remains aggressive amid very active export sales. Iraq is thought to be facing its worst wheat situation in many years. This has been made worse by delays in purchasing decisions which, at best are signaling unclear export expectations for the coming months. Old crop wheat (if you can find it) was priced very aggressively in the U.S. Mid-Atlantic states. Cash wheat in the U.S. Midwest weakened amid brisk farmer selling. It is not advised to price more than 40% of the ’08 crop. It wouldn’t hurt to see if 10% of the 2009 crop and 10% of the 2010 crop could be priced now.

November 2008 Soybeans, February 4, 2008
Data by DTN on the Web

5m Editor