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Weekly Roberts Market Report

by 5m Editor
4 April 2012, at 6:08am

US - Speculative and commercial buying in both old crop and new crop soybeans were supportive, writes Michael T. Roberts.

LEAN HOGS on the CME finished up on Monday. The APR’12LH contract closed at $84.725/cwt; up $1.300/cwt but $0.15/cwt lower than last Monday. MAY’12LH futures closed at $93.500/cwt; up $1.575/cwt bu $0.40/cwt lower than this time last week. AUG’12LH futures finished $1.150/cwt higher at $93.000/cwt but $0.625/cwt lower than last report. Stability in wholesale and cash markets energized pork prices on thinking by traders they have passed their spring low. Hog prices are seasonally low in the spring when the flush of more and heavier hogs hit the market during good growing weather. The gains marked a sharp rebound after shedding nearly 9 per cent of their value over the last five weeks on weak demand. Exports have picked up. An interesting graph by USDA’s Economic Research Service (ERS) shows that China’s hog cycle in large part drives US export numbers. Chinese retail pork prices rose more than 50 per cent in 2007 over prices in the previous year, leading to increased US exports of pork to China through the first half o 2008. Depressed hog prices and swine disease in 2010 led to a decline in China’s hog inventory that set the stage for another surge in US hog prices in 2011. Therefore, US pork exports to China rebounded strongly during the second half of 2011 after the 2009 ban on US pork imports was lifted. See chart.

Chinese hog prices are again ticking up and it is expected that US exports to China will do so as well. USDA on Monday put the wholesale pork price at $79.95/cwt; up $0.44/cwt and $0.13/cwt higher than this time last week. Demand for cash hogs is expected to back off during the week as processors fill lines on a shortened week. Several packers will be closed on either Friday or Monday to recognize the Easter holiday. According to HedgersEdge.com, the average packer margin was raised $5.0/hd to a negative $5.15/head based on the average buy of $59.16/cwt vs. the breakeven of $57.30/cwt. The latest CME lean hog index was estimated at 83.28; down 0.42; and 2.49 lower than this time last week.

CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The JULY’12 contract closed at $6.510/bu; up 7.75¢/bu and 15.0¢/bu higher than last Monday’s close. The DEC’12 contract closed at $5.450/bu; up 4.75¢/bu but 8.25¢/bu lower than last report. Old crop corn seems to be attracting strong buying interest and supporting prices even though USDA’s Prospective Plantings and Quarterly Grain Stocks report was fundamentally bearish for corn. The March 2012 USDA plantings report is the largest since 1937. USDA said that 95.9 mi ac of corn are expected to be planted in 2012. This is 4 per cent higher than last year, 9 per cent higher than 2010, and above average trade estimates for just under 95 mi ac. In 1937 US farmers planted an estimated 97.2 mi ac. Below is a chart from USDA showing corn planted acres and the year-over-year change.

In addition, the US corn crop planting pace is off to a very quick start. USDA placed the US corn crop at 3 per cent planted vs. the 5-year average of 2 per cent. This doesn’t mean that yields/acre will be larger. In fact, history shows the earlier the crop has been planted average-to-less-than-average yields have been made. Weather will be closely watched by traders as a freeze event is still statistically likely. Emerging plants are more susceptible to freezing temperatures. Lower corn stocks as of March 1, 2012 indicate that a lot of old crop corn has been sold off and emphasizes that commercial users could maintain bidding vigor in the short run. Exports were supportive with USDA putting corn-inspected-for-export at 30.989 mi bu vs. estimates for 25-30 mi bu. Technically speaking there is some support for a short upside bounce in prices in the near-term since corn is near oversold. The December 2012 contract Relative Strength Index (RSI) finished at 30.84. A contract is said to be oversold at or below 30. Speculative buying interest should continue in the short run as long as old crop supplies are short. Corn growers should seriously consider selling all old crop supplies at these prices; pricing up to 50-60 per cent of the 2012 crop and even some of the 2013 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The MAY’12 contract closed at $14.210/bu; up 18.0¢/bu and 41.75¢/bu over last report. NOV’12 futures closed at $13.852/bu; up 27.25¢/bu and 55.75 cents higher than a week ago. The market continued the seasonal uptrend. Speculative and commercial buying in both old crop and new crop soybeans were supportive. Old crop global supplies are shrinking and corn is taking away enough acres from soybeans that could allow the US soybean crop to reach historically low levels. Soybean plantings for 2012 were estimated at 73.9 mi ac, down 1 per cent from last year, down 5 per cent from 2010, and below recent trade estimates. About 75 mi ac need to be planted in order to keep soybean ending stocks from running precariously low next year. China again was the big US soybean buyer. Exports were supportive with USDA putting soybeans-inspected-for-export at 28.855 mi bu vs. estimates for 20-27 mi bu. This is more than twice the amount needed to stay on USDA’s target estimate of 1.275 bi bu. Soybean crops in South America hurt severely by drought are driving soybean futures higher still on expectations that lower South American supplies will support more export demand for US soybeans. Soybean prices should remain firm in a bidding war with corn. At these near-term prices soybeans are now more profitable per acre than corn (barely so but still more profitable). Technically speaking soybeans still run the risk of an extended decline due to the large number of long positions held by speculators, especially if traders want to take profits aggressively. Producers should consider selling all old crop soybeans at this time while getting to 40 per cent sold in the 2012 crop and 20 per cent sold in the 2013.

WHEAT futures in Chicago (CBOT) closed down on Monday. The MAy’12 contract closed at $6.570/bu; down 3.75¢/bu and 24.0¢/bu lower than this time last Monday. JULY’12 wheat futures finished at $6.694/bu; off 4.5¢/bu and 0.75¢/bu lower than a week ago. Winter wheat futures were pressured by weather forecasts for rain seen as potentially increasing yields and therefore supply. Follow-through profit taking off Friday’s highs was noted. Spring wheat futures were supported on USDA’s report forecasting lower-than-expected spring wheat acreage. The lack of price support indicates a continued bearish global stock situation in the long-term. USDA estimated wheat plantings of 55.9 mi ac were 3 per cent higher than the 2011 crop but 1 per cent lower than expected. Spring wheat plantings were 8 per cent higher than 2011 and 2 per cent higher than the 5-year average. USDA placed the US winter wheat crop in good-to-excellent condition at 58 per cent vs. 37 per cent this time last year. This is the first winter wheat crop condition report for 2012. Exports were not supportive with USDA putting wheat-inspected-for-export at 15.391 mi bu vs. estimates for 15-20 mi bu. If you didn’t get some of the 2012 crop prices last week now would be a very good time to considering doing so.