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Weekly Roberts Report: Fluctuating Fortunes

by 5m Editor
16 April 2008, at 7:21am

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

LEAN HOGS on the CME were mixed again on Monday. APR’08LH futures expired on Monday at $58.775/cwt, down $0.375/cwt and $0.125/cwt lower than last Monday. The MAY’08LH contract closed at $69.625/cwt, off $0.150/cwt and $0.575/cwt lower than a week ago. June lean hogs closed higher on a rally near the close supported by short covering and higher cash hog prices. Good cash prices were seen in response to reports of large numbers of weaned pigs being gassed in Canada due to U.S. buyers backing out of contracts. U.S. packers are backing off contracts to purchase amid worries over Country-of-Origin-Labeling (COOL) rules that take effect in September. This is causing a steep decline in feeder pig prices in Canada. According to Ron Plain, livestock economist at the University of Missouri, the question is how will Canadian pigs imported now be treated with respect to the COOL requirements when they go to slaughter? Which country are they from? The youngest pigs imported now will most likely be slaughtered after the law takes effect in September.” In export news, USDA last week said U.S. pork export numbers set a record in February reaching 156.8% of last year. USDA put the pork cutout value at $62.62/cwt on Friday, up $1.05/cwt. The latest CME Lean Hog Index registered at $57.17/cwt, up $0.79/cwt. The average pork plant margin for Monday was estimated at $4.65/head on a breakeven processing cost of $44.66/cwt vs. an average buy of $42.89/cwt, according to HedgersEdge.com. If hogs can be taken to heavier weights in this cool weather it might not be a bad idea to do so on better prices expected over the next two weeks.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mixed on Monday with nearby’s up and deferreds closing off somewhat. The APR’08LC contract closed at $89.150/cwt, up $0.450/cwt and $1.275/cwt higher than a week ago. This contract was under pressure by talk of deliveries last week but has rebounded nicely. JUNE’08LC futures were up $0.325/cwt at $90.100/cwt and $0.600/cwt higher than last Monday. This makes two weeks in a row of gains for these contracts. October live cattle are not as optimistic believing higher grain prices are in the offing. The OCT’08LC contract closed at $101.350/cwt, off $0.475/cwt. Cash cattle in the U.S. Plains did not show much activity on Monday after large sales last Friday around $87/cwt. USDA on Monday put the 5-area price for steers at $87.16/cwt vs. $85.95/cwt last week. Some analysts are saying we’ll have $89-$90/cwt cash cattle this week. $87-$88/cwt cattle are more like it on surging grain prices. Feeder buyers were reportedly losing as much as $175/head last week and may not want to bid up more losses this week. On the other hand, higher beef prices, less cattle, better futures prices and positive beef plant margins have feeders with cattle-to-sell-for-processing hoping for better prices this week. We’ll see but don’t hold your breath. Monday USDA raised the choice boxed beef cutout by $2.36/cwt from Friday to $145.83/cwt. The average beef plant margin for Monday, April 14 was estimated at $30.45/head vs. a negative $16.70 last Monday. This was based on the average buy at $85.61/cwt vs. an estimated breakeven processing figure of $88.87/cwt, according to HedgersEdge.com. Cash sellers should consider pricing some cattle on the nearby rally not waiting for the end of the week. Corn inputs should be priced only as needed.

FEEDER CATTLE at the CME closed up across the board on Monday. The APR’08FC contract finished at $99.550/cwt, up $0.050/cwt and $0.550/cwt higher than last Monday. MAY’08FC futures were up $0.025/cwt at $103.075/cwt and $1.150/cwt higher than a week ago. Feeders were supported by live cattle futures even though feed supplies were up. Hedge funds are looking to balance toward the end of the month with higher cash coffers from surging crude, gold, and silver. In addition, tighter feeder supplies were supportive. Estimates looking forward to Friday’s Cattle on Feed report are showing a range from 87%-98% of year-ago placements; from 96%-98% of last March’s marketings, and between 100.4%-102% of a-year-ago feedlot supplies. That’s why live cattle are being pressured and feeders look like a better bet. Stocker owners are seen as having opportunity to capitalize on grass gains if decent rains continue. Just remember not to put those feeders on fresh pastures too soon so as not to limit forage yields. The temptation is there with high feed supplies but it is strongly encouraged to hold of tromping that new grass just yet. Reading a forage and grazing piece the other day it was recommended to wait until short fescue was around 6 inches tall and tall fescue was around 9 inches tall before turning cattle out. The latest CME Feeder Cattle Index for April 10 was placed at $98.66/cwt, off $0.060/cwt. It is a good idea to hold off sales if adequate grazing opportunity is in place. Feeders still might rally a little more.

CORN on the Chicago Board of Trade (CBOT) closed up on Monday on speculative energy. The MAY’08 contract finished at $5.916/bu, up 7.4¢/bu and 0.16¢/bu higher than this time last week. The May contract was the only still under $6.00/bu. The DEC’08 contract closed up 9.2¢/bu at $6.132/bu and 10.0¢/bu over a week ago. Concerns over weather not permitting timely planting of the U.S. Corn crop were supportive. If corn can’t get planted farmers will turn to soybeans. Late on Monday USDA put the U.S. corn-crop-planting progress at 2% planted vs. 4% last year and the five-year average of 7%. Two more inches or rain was forecast for portions of Illinois, Indiana, Missouri, and southern Iowa later on this week. Strong demand fundamentals continue to energize strong support for corn prices. Eighty-six mi acres is just not enough to allow much leeway in forecasting error. Corn feeders and ethanol makers are going to have to see who needs corn more if anything less than 89 mi acres are planted. Pilgrim’s Pride said on Monday it was cutting back on weekly chicken processing by as much as 5% because of high corn and soybean meal prices. A high-level economic meeting was held in Washington, D.C. this weekend that focused on high food costs. Participants noted food shortages and skyrocketing prices are a potential threat to world stability. The need for food will continue to support high corn prices and U.S. exports. Corn-inspected-for-export was placed at 45.405 mi bu vs. expectations for between 38-44 mi bu. Cash corn in the U.S. Mid-Atlantic states was 6.0¢/bu– 8.0¢/bu higher in opening bids on Monday. Speculative buying drove prices as funds purchased over 3,000 contracts. Ethanol futures closed mixed with May ethanol futures closing at $2.49/gal and July ethanol at $2.37/gal. The graph below shows the relationship between the price of ethanol-production-breakeven and the price of corn. At $6.00/bu corn ethanol must bring over $2.00/gal or the plant will lose money, even shut down.

Source: Ron Plain, University of Missouri


It would be a very good idea to hold off selling anymore of the 2008 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed strong on Monday amid long liquidation. The MAY’08 contract finished at $13.724/bu, up 40.0¢/bu and $1.174/bu higher than last Monday. The NOV’08 soybean contract ended at $12.870/bu, up 24.4¢/bu and 72.0¢/bu higher than last Monday’s close. Speculators were banking on more wet weather further suppressing planting. The same food shortage and price concerns for corn were noted for soybeans on the global stage. Showing signs of a further weakening U.S. dollar, outside markets of crude oil ($111.76/ba), gold ($928.70/oz), and silver ($17.790/oz) were also notably higher. Crude oil was seen as ready to break the $112.21/ba record set last week. As hedge funds flush with money from gains in energy and precious metals, they will look to balance portfolios toward the last half of April. This is seen as supportive for grain commodity prices in that more fund money will be buying long positions at the speculative table. Poor harvests in other parts of the world and growing demand for soybeans are fundamentally driving prices higher. Argentina’s forecast for an early frost will hurt soybean quality there. China is seen as buying up to 25% of the U.S. crop after Argentina’s late strike. If so, they will remain the top buyer for U.S. soybeans. Cash soybeans were 40.0¢/bu – 60.0¢/bu higher at elevators in the U.S. Mid-Atlantic states on Monday. Large speculators poured more money into soybeans buying an estimated 3,500 contracts. You should be in a pretty good position at 40% sold in the 2008 crop. Not many elevators were forward pricing either corn or soybeans due to margin exposure. If you can price any of the 2009 crop now would be a very good time to price up to 20% of it.

WHEAT futures in Chicago (CBOT) were up on Monday with the exception of the nearby May contract. Wheat futures were held up on lackluster performance by soybeans and corn. The MAY’08 contract closed at $8.960/bu, off 0.4¢/bu and 25.2¢/bu lower than a week ago. The JULY’08 contract closed at $9.104/bu, even with last Friday’s close but 24.0¢/bu lower than a week ago. CBOT futures were pressured by losses in Kansas City and Minneapolis. Weather reports in the U.S. Plains looked good for the growing wheat crop. Some frost was reportedly forecast but one floor source said that many traders expected that to be a threat to the crop. Meanwhile, Argentina delayed wheat exports again while China’s 2008 wheat crop looks to be very good with higher yields on more acres. Funds in bullish positions sold 3,300 contracts. With continued tight world food supplies it is a good idea to hold off pricing any more at this time as higher prices are expected to redeploy. Cash bids for wheat in the U.S. Mid-Atlantic states on Monday were between 1.0¢/bu -3.0¢/bu lower. Hopefully the crop is priced at 50% on previous advice.

May'08 Feeder Cattle, April 14, 2008
Data by DTN on the Web

5m Editor