17 September 2008

6 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were up on Monday. OCT’08LC futures were up $1.600/cwt at $103.750/cwt; $0.700/cwt higher than this time last week. The DEC’08LC contract closed at $105.355/cwt up $1.550/cwt and $0.405/cwt higher than last Monday. Lower corn and soybean prices and short covering fueled the rally. USDA’s 5-area cattle prices for Monday were placed at $98.21-$98.46/cwt; about $0.32/cwt lower than a week ago. Selling related to funds and large speculative hedge accounts limited gains. Retails sales were considered sluggish. USDA put Monday’s choice boxed beef cutout at $160.80/cwt, up $0.23/cwt retail. July beef exports were up 8.2 mi lbs from June, and up 22.3 mi lbs compared to a year ago. The market expects USDA’s Friday report to show tighter supplies from a year ago in major feedlots and is considered supportive. However, many analysts are worrying over the large influence funds have in beef futures and are cautious about any optimism for beef until the current financial news shakes out a bit more. One floor source said they are waiting to see how cattle buyers react to prices over $101/cwt expected early in the week. According to HedgersEdge.com, the estimated average packer margin was up $15.55/head from two weeks ago placed at a positive $19.50/head based on the average buy of $98.39/cwt vs. a breakeven of $99.87/cwt. Sliding corn prices were supportive while feed costs are going to be volatile this week. It would be a good idea to hold off on any feed purchases until Wednesday to see how the grain and oilseed markets are going to react this week. If the corn market doesn’t turn south by the end of the week some purchases might be made.

FEEDER CATTLE at the CME closed down on Monday. The SEPT’08 contract finished the day at $109.700/cwt, off $0.200/cwt from Friday’s close and $1.600/cwt lower than last Monday. Sells stops, October/November bear spreads, and expectations cash feeder sales are going lower later in the week pressured prices. Funds and large speculative hedgers were noted sellers. The latest CME Feeder Cattle index was placed at $110.98; off $0.34/cwt. Hurricane Ike may have some influence on corn production but there the good news is that we haven’t had that early frost yet. However, the financial market shakeup on Monday have the grain and livestock markets worried. It might be a good idea to see what shakes out by Wednesday before booking any inputs or sales.

LEAN HOGS on the CME closed mostly up on Monday. The OCT’08LH contract closed at $67.35/cwt, up $1.250/cwt but $1.500/cwt lower than last Monday. DEC’08 futures closed up $1.250/cwt at $66.550/cwt but down $0.900cwt from a week ago. The APR’09 contract closed off $0.800/cwt at $80.000/cwt. Bull spreading pressured some deferreds amid support for front months from last week’s stronger prices on Friday; their discount to cash hog markets; and near oversold futures. Plenty of pork supplies held cash prices steady to $1/cwt lower as most packers processing needs remained filled through the end of the week. Six floor sources spoken with today indicated that the market remains jittery over hog supplies that threaten to overload demand suggesting that hog futures will languish. July pork exports were down 57.3 mi lbs to 409.5 mi lbs but up from 220.1 mi lbs a year ago. On Friday, USDA put the pork carcass cutout at $75.74/cwt, up $0.68/cwt. The latest packer margin was raised $5.40/head from last week to $8.70/head based on the average buy of $50.80/cwt vs. an average breakeven of $54.70/cwt, according to HedgersEdge.com. It is a good idea to sell hogs when ready. Feed inputs will be volatile.

CORN futures on the Chicago Board of Trade (CBOT) finished off Monday in reaction to news from Wall Street that Lehman Brothers, Merrill Lynch, and AIG are in trouble. The financial powerhouses have lots of influence on commodity markets. The DEC’08 contract closed at $5.620/bu, down 1.5¢/bu from Friday and 13.0¢/bu lower than this time last week. MAR’09 corn futures closed at $5.802/bu; off 1.75¢/bu. Profits from Friday’s gains in reaction to USDA’s lowered production estimates were threatened throughout the day. USDA raised farmgate prices by 10.0¢/bu to $5.00-$6.00/bu last Friday while fundamental support held off heavy losses. The market will wait a day or two to see how things are going to shake out with the large speculative and hedge accounts. The weather was somewhat of a factor in that Ike couldn’t have marched across the cornbelt at a worse time. Up to 7 inches are being forecast for some areas. Brisk buying by corn users was supportive. USDA put the U.S. corn crop in good-to-excellent condition at 61%; unchanged from last week. The market traded expectations for a 2%-3% lower crop rating. Funds weren’t very active selling only about 1,000 lots reducing net bull positions. The December ’08 corn chart registered a 39.87, 14-day Relative Strength Index (RSI) with all key moving averages indicating upward momentum. Looks like a bullish market may get started. The last report noted that severe weather or some other unforeseen event could influence the market. Ike (bullish) and Wall Street (bearish?) happened. This may be a bottom and may not. If large fund positions are forced into position liquidation corn prices could come down more in the short run. The fundamentals are supportive while the financial markets are not. The next few days may determine the direction this market will take over the next few weeks. Those who have up to 70% of the ’08 crop priced today are in good shape. Hopefully up to 20% of the ’09 crop has been sold.

SOYBEAN futures on the Chicago Board of Trade (CBOT) were down on Monday. NOV’08 soybean futures closed at $11.790/bu, off 23.0¢/bu and 13.0 cents lower than last Monday. The JAN’09 soybean contract closed at $11.946/bu; off 23.25¢/bu. USDA’s latest report was viewed as slightly bullish for soybeans. The season average price was raised 10.0¢/bu to $11.60-$13.10/bu. The same outside market influences affecting corn affected soybeans. Long liquidation was a feature of the day as selling action heated up. However, some short covering and soybean-user buying was supportive. USDA’s crop progress report put the U.S. soybean crop in good-to-excellent condition at 57%; unchanged from last week’s total. However, it should be noted that the excellent rating was lowered 1 point while the good rating was raised by 1 point. Floor sources said they traded expectations that USDA would lower the crop rating up to 2 points. Funds sold over 3,000 contracts while large speculators reduced net bull positions in CBOT soybean futures and options. It is good to consider staying at 60%-70% sold in the ‘08 crop. Hopefully up to 20% of the ’09 crop priced was priced two weeks ago.

WHEAT futures in Chicago (CBOT) closed up slightly on Monday but continue to show a long term downward trend as global stocks increased. The DEC’08 contract closed at $7.270/bu, up 7.75¢/bu from Friday’s close. JULY’09 wheat futures closed off 9.2¢/bu at $7.772/bu; 8.5¢/bu higher than the last close but 15.25¢/bu lower than last Monday. USDA’s World Agriculture Supply Demand Estimates (WASDE) report was considered neutral for wheat. The season-average farmgate price was lowered 20.0¢/bu to $6.70-$7.80/bu. Wheat might have done better except for the uncertainty that the news of financial powerhouse failing brought to the market. Short-covering and oversold chart signs were supportive. Funds bought while large speculators reduced net bullish positions in CBOT wheat futures and options. It probably is a good idea to hold off pricing any more wheat just yet while remaining at 60% sold in the ’09 crop.