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Weekly Roberts Report: Economy Antics Shaking Markets

by 5m Editor
19 March 2008, at 7:56am

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

LEAN HOGS on the CME were up on Monday. APR’08LH futures were up $0.900/cwt at $55.925/cwt, but $1.800/cwt lower than a week ago. The MAY’08LH contract closed at $66.350/cwt, up $0.700/cwt but $2.050/cwt lower than last Monday. In an odd turnabout, funds bought hogs today as sell-stops were triggered in latter months. Even though they got out of every other commodity reported in this column today, hogs were the lone exception. The funds just couldn’t stand it. Packers are enjoying their profits right now and are not expected to push anything that will upset the price balance going into the Easter Holidays. Thinking is that folks are buying more pork than high priced beef. USDA on Monday put hog slaughter at 432,000 head, up 2,000 head and up 28,000 head from a year ago. USDA also published the pork cutout value at $57.19/cwt, up $0.40/cwt. The average packer margin for Monday was placed at a positive $9.400/head according to HedgersEdge.com. The estimated breakeven for packers was right at $40.65/cwt with the average buy estimated at $37.10/cwt. Integrators were crying all the way to the bank today. The CME Lean Hog Index was placed at $53.97/cwt, down $0.55/cwt. It is a good idea to sell market ready hogs while pricing corn later in the week.

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"Jitters about the US economy and further weakness in the financial markets will most likely keep commodity prices down this week."

Mike Roberts

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mostly down on Monday. The APR’08LC contract closed at $89.225/cwt, off $1.275/cwt and $0.525/cwt lower than last Monday. JUNE’08LC futures were down $0.975/cwt at $89.975/cwt and $1.525/cwt lower than a week ago. The same fund liquidation action hit cattle that affected corn, soybeans, and wheat. Also affecting meats were worries that consumers will start looking for cheaper meat protein because of the down-trending economy. This liquidation is mostly because of longs getting out of the markets, as noted by the decrease in open interest in the nearby contract months. Fundamental forces are finally shaking the markets awake because of the scarcity of fund capital. Higher boxed beef prices were supportive as USDA on Monday put the choice beef cutout at $142.45/cwt, up $0.50/cwt. Packers had their fill. According to HedegersEdbe.com, packers were losing an estimated $27.90/head, buying cattle at buying cattle an average $90.25/cwt vs. a breakeven price of $88.03/cwt. Analyst’s guesses about what UDSA’s Cattle on Feed report will show ranged from 97.1% – 111% of last year. Estimates for February marketings ranged from 97.6% - 103.2%. USDA’s 5-area price for cash cattle were $0.25/cwt - $0.50/cwt lower at $89.85/cwt. Another negative factor for the market to consider is the rising price in fuel. It will cost more to ship cattle to processors therefore restricting what local buyers will offer. Cash sellers should sell cattle on any rally. It might be a good idea to price corn inputs toward the middle-to-end of the week.

FEEDER CATTLE at the CME were down on Monday. MAR’08FC futures closed at $99.100/cwt, off $0.200/cwt and $1.100/cwt lower than a week ago. This contract has lost $2.575/cwt in two weeks. MAY’08FC futures were down $1.300/cwt $103.825/cwt, off $3.00/cwt from last Monday and $5.700/cwt lower than two weeks ago. Feeders followed all the rest of the commodities but on short covering taking profits rather long liquidation stemming losses. Cash feeders were steady to $1.00/cwt lower in Oklahoma City. Live cattle and feeders were off despite lower corn prices. This too is due to the credit and liquidity crunch that hit all markets today. The latest CME Feeder Cattle Index for March 13 was placed at $100.24/cwt, up $0.07/cwt. It might be a good idea to price corn inputs later in the week. It is a good time to sell feeders if they are ready.

CORN on the Chicago Board of Trade (CBOT) closed limit down across all contracts on Monday as expected. The MAy’08 contract finished at $5.392/bu, down 20.0¢/bu. The DEC’08 contract closed down 20.0¢/bu at $5.550/bu and 24.6¢/bu lower than a week ago. Speculators that had put all that bullish money in commodities began pulling it out today amid economic turmoil and a worldwide credit squeeze even as long range fundamentals continue to look good for corn prices. Oh well, funds pushed things up and now they will have an effect on the downside. That is the nature of their influence these days. A weaker dollar as gold went over $1,000.00/ounce and falling crude oil prices weighed on prices as well. Buyers were said to be running for cover, according to several floor sources in Chicago. The market will be looking for the clearer price picture based on fundamentals as it proceeds through the week. As credit financed positions leave the market it looks like corn will be going lower. If you have an opportunity to forward price any cash corn it certainly would be a very good idea to do so up to 30%-40% of this year’s and the same amount on next year’s crop. Even though a little pricey, buying a put option wouldn’t be a bad idea either. A $5.00/bu put option cost 45.0¢/bu at closing and may well be worth it.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down sharply on Monday amid major speculative liquidation. Last week this report stated soybeans had posted what looks like a major high. Still looks that way. The MAY’08 contract finished at $13.026/bu, down 50.0¢/bu. The NOV’08 soybean contract ended at $12.290/bu, off 50.0¢/bu from Friday and 71.0¢/bu lower than last Monday. Same song as with corn … credit crunch woes. The market just doesn’t have any liquidity of cash without credit to shore up all those long positions. Many investment firms are rethinking their exposure in holding huge positions based on loans. As with corn, the weak dollar and a steep decline in crude oil prices were not helpful. More weakness in these prices will most likely continue throughout the week. It was a good idea last week to get to 40% sold on the ’08 crop, and still is if you can find an elevator that will forward cash price with you today. The chart in this week’s report is again soybeans in order to show that a head and shoulders formation with a downside measuring objective of $10.774/bu is all but confirmed. Buying a put option might be a very good idea right about now. An $11.00/bu put option costs 97.0¢/bu today locking in a price floor of $10.03/bu.

WHEAT futures in Chicago (CBOT) were limit down on Monday. Same channel, same station. MAY’08 futures closed at $11.314/bu, off 60.0¢/bu. The JULY’08 contract closed at $11.020¢/bu, down 60.0¢/bu and 19.6¢/bu /bu lower than last Monday. Cash prices were down the limit in the U.S. Mid-Atlantic States as well. Jitters about the U.S. economy and further weakness in the financial markets will most likely keep commodity prices down this week. All eyes are on the Federal Reserve to see what they are going to do about this present credit crunch. Exports are expected to remain slow throughout the week until things settle down somewhat. Wheat will most likely be the one that leads the charge back due to global fundamentals. Nothing has changed about the world shortage of wheat. There is evidence that buyers are using call options to mitigate risk.It was a very good idea to get to 40% of the ’08 crop priced last week if you haden’t done so already. But, there is no hurry as wheat stands a really good chance to bounce back

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November 2008 Soybeans, March 17, 2008
Data by DTN on the Web

5m Editor