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Weekly Roberts Report

by 5m Editor
30 July 2008, at 7:41am

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

Headlines that could affect grain prices this week: “The CFTC will meet on Tuesday to look into the lack of convergence between futures and local cash prices.” “CFTC continues to study large speculative influences on commodity markets and will ultimately make trading recommendations limiting same.”

LEAN HOGS on the CME closed up mostly on Monday in a mirror image of the pattern in last Monday’s report. The three nearby contracts finished off while the back months registered gains. The AUG’08LH contract closed at $78.550/cwt, off $0.050/cwt but $0.975/cwt higher than a week ago. The FEB’09 contract closed up $0.075/cwt at $82.450/cwt and $0.85/cwt over last week at this time. The market is trading the nearbys near their top while expecting feed prices to go lower in the deferred months. I agree. Cash markets were mostly supportive amid profitable packer margins. The average estimated packer margin for Monday was placed at $3.85/head vs. $5.80/head last Monday, according to HedgersEdge.com. This was based on the average buy of $59.71/cwt compared to the average breakeven of $61.21/cwt. Exports were strong amid declining carcass weights. USDA lowered the pork cutout value by $0.22/cwt to $85.25/cwt. The latest CME Lean Hog index was placed at $80.74/cwt, up $0.61/cwt. Sell hogs when ready if the weight can be put on in this heat. Opportunities to price feed will come later in the week.

CORN on the Chicago Board of Trade (CBOT) finished up on Monday. The SEPT’08 contract finished at $5.820/bu, up 4.6¢/bu but 7.2¢/bu cents lower than a week ago. The DEC’08 contract closed at $6.012/bu, up 4.6¢/bu but 7.0¢/bu lower than this time last week. This is a technical bounce as traders and end users take advantage of buying opportunities. Whoever thought that $6.00 corn would be considered a bargain? Corn feeders and ethanol producers did today. The December ’08 contract’s 14-day Relative Strength Index (RSI) finished at 42.85, solidly in the middle range between overbought and oversold. Yield loss expectations due to hot weather and floods in the U.S. Midwest, ideas for better exports this week, stronger crude oil, a weaker U.S. dollar, and a lower RSI were all supportive factors in futures trading today. In addition, corn yields could be lower due to nitrogen loss after recent floods as farmers weigh the cost of adding more fertilizer to current stands of flooded corn fields. Producers are contemplating reports of 30% higher input costs for the 2009 crop and may try to conserve on the 2008 growing crop. On the bright side for U.S. producers is that higher fertilizer costs will affect Argentinean producers causing them to cut back on upcoming corn plantings. Late Monday USDA placed the U.S. corn crop in the good-to-excellent rating at 66%, 1% higher than a week ago. Exports were supportive. Corn-inspected-for-export was placed at 39.027 mi bu vs. expectations for between 30-40 mi bu. Ethanol exports from Brazil are increasing across the globe. Even though funds were supportive (buying over 3,500 contracts) large speculators cut net bull positions in CBOT corn by 24,700 lots to 91,061. Corn/wheat spreading was noted as supportive. Cash corn in the U.S. Corn Belt was steady while prices in the U.S. Mid-Atlantic states were 3.0¢/bu – 5.0¢/bu higher in many locations. Today’s technical bounce is a good example of why it is a good idea to not have over 70% of the crop sold at this time. Weather, crude oil prices, and world events can always drive prices up … or down. However, up to 60%-70% of the ’08 crop should be priced on recent highs. It would not be a good idea to price another 10% now. A producer client called me last week to report that based on this report he had sold enough corn to cover all costs plus an 18% profit (he hedged fuel prices as well on advice in an earlier call). He has 23% of his crop to speculate with and is already a net profit winner! That’s what this report is all about … helping producers make a profit.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were up somewhat on Monday. The AUG’08 contract finished at $14.002/bu, up 1.4¢/bu from last Friday’s close but 9.2¢/bu lower than a week ago. NOV’08 soybean futures closed at $13.960/bu, up 9.4¢/bu but 7.0¢/bu lower than last Monday. Steady basis, rising crude oil prices, a weaker U.S. dollar, and fair export expectations were supportive. It was noted late in the day that Argentinean soybeans were coming onto the global market and competing for Chinese import dollars. However, good soybean growing weather kept prices in check. Cash soybeans along the Mississippi river and in the U.S. Mid-Atlantic states were steady to as much as 9.0¢/bu higher. USDA put soybeans inspected- for-export at 10.134 mi bu vs. estimates for between 7-11 mi bu. USDA late on Monday placed the U.S. soybean crop at 62% good-to-excellent condition; a 1% increase over last week at this time and well within trading expectations. The CFTC Commitment of Traders report showed large speculators cutting net bull positions by 18,400 lots to 62,627 contracts even though funds bought just over 2,000 contracts. Hopefully up to 50% of the 2008 crop has been sold. If not, it would be a good idea to get to that level on these mild rallies.

WHEAT futures in Chicago (CBOT) declined on Monday after last week’s gains. The SEPT’08 contract closed at $7.976/bu, off 13.2¢/bu from Friday but 6.6¢/bu higher than a week ago. JULY’09 wheat futures closed off 13.04¢/bu at $8.686/bu; 3.0¢/bu higher than this time last week. Chart based selling and profit taking limited prices even though early trading reports had Iran planning to import 1 mi tonnes (36.7 mi bu) each month over the next 9 months due to drought. In addition, expectations for a global crop that will break world records for production pressured prices. USDA placed wheat-inspected-for-export at 21.799 mi bu vs. expectations for between 19-26 mi bu. Iraq bought 100,000 tonnes (3.67 mi bu) of non-U.S. origin wheat over the last few days. Morocco tendered for 307,090 tonnes (11.03 mi bu) of wheat. USDA late on Monday put the U.S. spring wheat crop at 63% in good-to-excellent (GTE) condition vs. 68% GTE condition this time last week. The market expected a 2-3% drop but not 5%. A spring wheat tour is scheduled for this week that will look at the condition of the U.S. spring wheat crop. It is expected that trip participants will find better conditions than are being reported. Also weighing on wheat prices were fund activity selling over 3,000 lots and corn/wheat spreading by speculators. The CFTC Commitment of Traders report supplement had large speculators decreasing net bear positions in CBOT wheat to 28,827 contracts, a 6,900 lot decrease. Wheat in Kansas City and Minneapolis followed CBOT wheat lower. Hopefully the entire 2008 winter wheat crop has been sold. Not much spring wheat is grown in the U.S. Mid-Atlantic states for anything other than grazing. If you grow for grain, it would be a good idea to have up to 20% of the ’08 spring crop, as well as up to 20% of the 2009 winter wheat crop sold.

5m Editor