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Weekly Roberts Report

by 5m Editor
24 January 2007, at 11:48am

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



LEAN HOGS on the CME closed down on Monday. FEB’07LH futures closed at $60.950/cwt, off $0.625/cwt. The APR’07LH closed off $1.050/cwt at $64.550/cwt. However, contract highs were set in early trading in the June, July, and August contracts. Futures closed lower on Monday amid profit taking after some contract highs were set early and cash hogs traded weaker to lower on Monday. Strong pork exports had lean hog futures trending higher recently amid retreating hog weights following winter storms. Demand for pork seems to be good in part due to more avian flu problems oversees.

Pork exports set the 15th consecutive year of record in 2006. USDA recently projected that exports would likely continue to rise while pork production is expected to back off somewhat in 2007. Analysts expect that the end-of-December total frozen pork stock numbers would come in at 454.2 million lbs, down from 464.2 million lbs at the end of November. Trade was uneven ahead of USDA’s Cold Storage Report due out on Friday. Cash sellers should continue to push hogs off the feeding floors as soon as they can be readied while avoiding weight discounts. Hedgers should consider positions that will protect 1st quarter ‘07 and 2nd quarter ’07 pork production. Corn users may want to protect against rising prices over the next few weeks.

CORN on the Chicago Board of Trade (CBOT) closed 2.4¢/bu lower to 5.6¢/bu higher on Monday. The MAR’07 contract closed at $4.042/bu, off 2.4¢/bu. The DEC’07 contract finished at $3.964/bu, up 5.6¢/bu. DEC’08 futures finished up 1.2¢/bu at $3.746/bu. All these sharp increases are due to the reaction to the last USDA’s World Supply/Demand report and talk of more and more ethanol demand. This market is looking bullish amid expectations that more support will be presented by President Bush’s remarks in the his “State of the Union“ address on Tuesday night. Corn is expected to remain high until new crop acres are reported increased to meet demand. Some bear-spreading was noted (the buying of deferred months and selling nearby months) as some traders reported rolling long positions thinking that near-term demand is waning on account of high corn prices. Bear spreading is not supportive of a bullish market. These same high prices are slowing sales of U.S. corn as Israel reported buying South American old-crop corn because it is cheaper than U.S. corn.

Floor traders stated “This looks like bad news for the U.S. as South American corn is now entering the international market and is likely to replaced U.S. supplies for the next few months.“ Cash corn in the U.S. Midwest and the U.S. Mid-Atlantic States was steady to firm on Monday amid good demand. USDA reported on Monday that Japan bought 121,920 tonnes (4.8 mi bu). USDA also reported 40.6 mi bu of corn was inspected for export last week at the high end of the expected 35-40 million bu. Winter was not a bullish factor in trading today as recent weather was seen as providing plenty of moisture for the upcoming growing season. No significant weather difficulties were reported from Argentina. The Relative Strength Index (RSI) in the MAR’07 contract lost some of its upward momentum after prices declined last Friday. Friday’s CFTC Commitments of Traders report for futures/options combined showed funds in long positions at 367,327 lots, up 49,175 from the previous week. Funds in short positions were down 12,651 lots to 59.166 contracts.

Volume was estimated by the CBOT at 223,341 futures and 45,248 options. The JAN’07 ethanol futures contract closed off 0.025¢/gal at $1.675/gal, and off 0.08¢/gal from two weeks ago due to higher corn prices. I think this corn market has a good chance of sustaining these prices for the ’07 crop year if ethanol demand-forecasts hold up to current USDA expectations. U.S. corn acres will not be able to keep up if that happens. But, that is the $64-ollar question … will ethanol demand projections hold? Corn producers should have considered selling up to 30%-40% of the ’07 crop. Buying a July $4.20/bu Call option for 36.6¢/bu may be worth it to protect the contracted corn bottom side while leaving upside potential open. This market is trading in a sideways’ pattern for now just waiting on the next news event or profit taking by the funds.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed mixed on Monday with the MAR’07 soybean contract finishing at $7.172/bu, off 0.4¢/bu. The NOV’07 closed down 0.4¢/bu as well at $7.686/bu. One floor source said the market could never get any momentum going in trades that were hard to quantify as anything other than a lot of liquidations of long positions. Many traders were eliminating corn/soybean spreads in a choppy market that was hard to define. About the only trend on the day was new-crop corn gaining on new-crop soybeans as traders wondered why soybeans were keeping up these levels. U.S. farmers are reportedly going to plant more corn acres and the soybean market doesn’t know quite where to go yet. Exports reported by USDA early on Monday show 21.9 million bu of soybeans inspected for export last week. This was on the low side of expectations between 21-26 million bu.

Weak cash markets overhung the soy market due to plenty of supply and soft demand. Midwestern cash soybeans were off 6.0¢/bu – 7.0¢/bu while beans in the Mid-Atlantic States were weaker somewhat, down 1.0¢/bu – 3.0¢/bu. Also bearish for U.S. soybeans was news that South America was having favorable weather for the entire developing crop. Supportive were emerging concerns of soybean rust due to continued damp weather in northern Brazil. Volume was light compared to last week with estimates for futures at 72,775 lots and 33,037 options contracts. CFTC’s Commitment of Traders report late Friday showed funds increasing net long positions by 7,300 lots in CBOT soybeans to 62,000 contracts in futures/options combined. Cash sellers should still consider pricing up to 50% of the ’07 crop. Hedgers who placed short positions near $7.00/bu in the NOV’07 contract three weeks ago are off those positions keeping a watchful eye for short positions near the $7.60/bu range. Everything is still on the table for this market to go bearish.

WHEAT in Chicago (CBOT) ended mixed on Monday as nearbys lost to deferreds on modest bear-spreading. MAR’07 futures closed at $4.650/bu, down 2.0¢/bu from the last closing. JULY’07 wheat finished up by 0.6¢/bu at $4.870/bu. Trade was choppy in light volume, staging a rally to session highs at times but turning back at the closing bell. Volume was estimated by the CBOT at 51,737 wheat futures and 2,027 options. Soft cash markets weighed on nearby contracts but were supported by decent wheat export activity. USDA reported 20.2 million bu inspected for export last week above range estimates for 14-17 mi bu. It was also reported that Nigeria bought 195,000 tonnes (7 mi bu) of U.S. hard red winter wheat while Morocco announced plans for buying 85,000 tonnes (3.1 mi bu) of durum wheat.

Egypt bought 175,000 tonnes (6.4 mi bu) of wheat that included 55,000 tonnes (2 mi bu) of U.S. wheat from Perdue in Norfolk, VA and 120,000 tonnes (4.4 mi bu) of Russian Wheat. Favorable crop conditions amid improved soil moisture continued to weigh on the bearish market after another round of snowfall in the U.S. Plains over the weekend. Friday’s CFTC Commitments of Traders report showed funds cutting bullish positions in CBOT wheat futures/options combined to 196,3766 contracts for the week ended Jan. 16. With local cash bids still ranging from $4.10/bu-$4.30/bu, it might be a good idea to forward price up to 50% of the ‘07 crop at this time. Hedgers not on positions yet should consider opportunities around the $4.80/bu range in JULY’07 futures.

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