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Weekly Roberts Report

by 5m Editor
19 May 2010, at 12:01am

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

LEAN HOGS on the CME were down on Monday. The JUNE’10LH contract closed off $2.050/cwt at $81.500/cwt. AUG’10LH futures finished at $81.500/cwt; off $2.000/cwt and $4.250/cwt lower than a week ago. Hog futures registered the market’s largest losses in some time turning bearish under seasonal pressure on protein demand. Several floor traders told me today they expected the downward trend to continue at least two weeks on technical selling, weak cash demand, a stronger US dollar that makes US pork higher priced on the world market, and jitters on the DOW over bothersome European Union debt challenges. Futures sold off despite news last Friday that China would begin accepting US pork after banning for almost a year. The consensus among quite a number of floor sources was they would believe it when they see it. Despite the doom-and-gloom USDA put the pork cutout at $91.81/cwt; up $1.00/cwt and $2.36/cwt higher than last week at this time. The CME lean hog index was placed at $88.18/lb; off $0.42/lb and $0.25/lb down from last report. According to HedgersEdge.com, the average pork plant margin was raised $6.55/hd from last report to a positive $6.95/hd. This was based on the average buy of $63.50/cwt vs. the average breakeven price of $66.06/cwt.

CORN futures on the Chicago Board of Trade (CBOT) finished down on Monday. The JULY’10 contract closed at $3.560/bu; down 7.0¢/bu. DEC’10 corn futures closed off 6.25¢/bu at $3.736/bu and 12.75¢/bu lower than last report. Prospects for good crop weather in the US and good harvest weather in South America, a stronger US dollar, sliding oil and stock prices, and economic hang-over worries about stumbling European economies amid no fresh fundamental news pressured prices to three week lows. Even though exports were below expectations they are viewed as neutral at current levels. Floor sources pointed out China had not come through with new corn purchases as rumored. Late Monday USDA issued its crop progress report showing US corn 87 per cent planted vs. the 5-year average of 78 per cent for this time of year. In addition, USDA put the US corn crop 55 per cent emerged vs. the 5-year average of 39 per cent. There was no crop condition report for US corn. Ethanol futures followed energy futures lower in continued stumbling. It is tough to find ethanol profit margins when energy prices are pressured. Bearish technicals and fundamentals look like corn prices will continue to be pressured especially if Europe’s economy is hit by another recession that will slowing demand. Disappointingly USDA put corn-inspected-for-export at 38.485 mi bu vs. expectations for 40-45 mi bu on expected China import demand. Funds were sellers of 7,000 contracts. Fund selling is a measure of investment or money flow out of the futures market and is often a bearish influence. This was not unexpected after last week’s widening in net bull positions on expected Chinese demand for US corn. Oh well … easy come, easy go. Cash corn was steady-to-firm amid slow farmer selling. Up to 70 per cent of the 2010 corn crop has been priced and it would be wise to speculate with the rest.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were down on Monday. The JULY’10 soybean contract closed at $9.410/bu; up 12.5¢/bu. NOV’10 futures closed at $9.164/bu down 9.75¢/bu and 18.25¢/bu lower than last report. Are futures below $9.00/bu a close possibility? I think so. Lower corn and wheat futures, the troubled European economic situation, a higher US dollar, and good crop development weather pressured prices. US soybean plantings are on a firm pace. Late Monday USDA put US soybean plantings at 38 per cent vs. the 35 per cent 5-year average. This could underpin soybean futures this week as most traders expected USDA to place the planting rate at 45 per cent. Near oversold status was also helpful as the relative strength indices (RSI) of several contracts approached 35. A contract is considered oversold when the RSI is at or near 30 and overbought when the RSI is calculated at or near 70. Exports continued to be disappointing with USDA placing soybeans-inspected-for-export at 8.47 mi bu vs. expectations for 10-12 mi bu. China is out of the US soybean importing business right now and this is affecting US soybean prices. China is buying cheaper South American influenced by a strong US dollar. Cash soybeans remain firm and trending into seasonal price patterns in most locations amid slow farmer selling. Funds were net sellers of nearly 4,000 lots as investment money continues to exit futures. Prices in Argentina’s port city of Rosario continued to fall under producer delivery pressure. Hopefully 70 per cent of the crop has been sold on previous advice. If so all variable costs and 95 per cent of fixed costs are covered so speculation with the rest is a pretty sure thing.

WHEAT futures in Chicago (CBOT) were mixed on Monday with deferreds finishing as gainers. The JULY’10 wheat contract closed at $4.690/bu; off 2.5¢/bu and 23.75¢/bu lower than a week ago. JULY’11 futures finished up 1.0¢/bu at $5.81/bu. Even though world stocks are plentiful and good crop growing and development weather persists futures seemed optimistic for next winter. Pricing some of the 2011 crop could be in order at this time. Countries are not buying US wheat amid plentiful global stocks. USDA put US wheat-inspected-for-export at 12.557 mi bu vs. expectations for 10-15 mi bu. Funds sold over 3,000 contracts as investment money continues to flow out of wheat commodities. Several floor sources told me today that wheat is, and will continue to be, prone to short-covering as technical traders buy back short positions turning short-term profits. This is particularly true when funds hold large net-short positions as they do now. As of May 11 funds in CBOT wheat were 48,278 net short contracts vs. 50,306 net-short lots a week ago. This is not enough difference to say there is a fundamental shift in trader thinking at this time. On the fundamental side, reports that Australia’s wheat crop may come up shorter than expected may push stocks lower supporting futures. Caution advises a “believe it when we see it” approach. Hopefully 70 per cent of the 2010 crop was sold on previous advice allowing room to speculate with the rest of the crop. In many Mid-Atlantic States wheat will be sold as it is harvested because of storage challenges.