2 April 2008

6 minute read

North America

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mostly gainers on Monday. The APR’08LC contract closed at $87.425/cwt, off $0.225/cwt and $1.800/cwt lower than two weeks ago. JUNE’08LC futures were down $0.125/cwt at $87.750/cwt and $2.230/cwt lower than Monday before last. The rest of the back months were gainers but all contracts lost some ground on pressure from increasing corn prices and short covering near the close. USDA reported a large hog supply which competes with beef for meat protein. Lower cash sales also prompted some selling. The USDA 5-area price was $1.00-1.80/cwt lower than this time last week and $7.50-$8.00/cwt lower than this time last year. It has been reported that feedlot losses were estimated as much as $150.00/head last week. USDA placed last week’s sales figures for the Texas/Oklahoma area at 41,611 head and in Kansas, almost 32,000 head were sold. USDA on Monday put choice beef cutout at $138.22/cwt, up $0.83/cwt. Select prices aren’t usually reported in this report but are still running close to choice at $137.88/cwt meaning folks are still buying cheaper cuts of meat in this shaky economy. Demand for fat cattle is expected to remain at a lower level because of sustained negative packer margins. According to HedgersEdge.com, the average beef plant margin for Monday was estimated at a negative $28.80/head but this is $1.05/head better than this time last week. Packers were estimated paying $89.28/cwt vs. an estimated breakeven buy of $86.99/cwt. In addition, higher fuel prices are affecting transportation costs and buyers are just not as willing to pay up for the cattle. Problems with exports from South America could provide openings for U.S. beef in Asian markets. Cash sellers should sell cattle on any rally. Hopefully corn inputs were priced on last week’s slide. If not, it will probably be another two weeks before any significant opportunity to price corn may come along.

FEEDER CATTLE at the CME were down across the board on Monday. The APR’08FC contract finished at $99.300/cwt, down $1.125/cwt. MAY’08FC futures were down $1.050/cwt at $101.225/cwt. Losses could have been steeper but were limited on end-of-session-profit-paring in the CBOT corn pit. I’m writing this report from Oklahoma City and passed the Oklahoma City cattle market on the way in to town from the airport. It was reported that cash feeders in Oklahoma City were $2.00-$2.50/cwt lower after starting out a shaky $5.00/cwt lower then recovering later in the day. There didn’t seem to be a lot of feeder cattle trading today. Feeder buyers are finding it difficult to keep things together right now. It seems that everything is coming together to pressure them. Gregg Doud, Chief Economist for the National Cattlemen’s Beef Association said it well. It is the perfect storm for the cattle business because of higher input costs, lack of market access to Japan and Korea, increased pork supplies and the troubled U.S. economy. This is unprecedented.” I agree. One analyst has estimated that feeders are losing up to $200.00/head. The latest CME Feeder Cattle Index for March 27 was placed at $99.68, down $0.02/cwt but $0.66/cwt better than this time last week. Feeders don’t look like they will recover this week on weak demand and surging corn. It might be a good idea to go ahead and push sales if adequate corn inputs were not bought last week.

LEAN HOGS on the CME were off on Monday. APR’08LH futures were down $1.025/cwt at $57.075/cwt. The MAY’08LH contract closed at $66.300/cwt, off $2.275/cwt. Soaring corn prices contributed to the decline in prices. USDA reported last Friday that as of March 1, 7% more hogs were in the U.S. inventory over this time last year. This number was a great deal more than what was generally expected. The report spurred selling amid limit losses trimmed later in the day by short covering. Sow liquidation is seen as very limited. Cash hogs were steady to firm with packers reporting less-than-full kill lines. The latest CME Lean Hog Index was placed at $52.67/cwt, up $0.21/cwt. Funds were active buyers of lean hog futures. On Monday, USDA put hog slaughter at 432,000 head, up 2,000 head from this time last week and 28,000 head over a year ago. USDA put the pork cutout value at $57.19/cwt, up $0.40/cwt. The average packer margin for Monday was placed at a positive $0.35/head according to HedgersEdge.com. The estimated breakeven for packers was right at $39.82/cwt with the average buy estimated at $39.68/cwt. It is a good idea to sell market ready hogs. Hopefully considerable corn inputs were priced last week.

CORN on the Chicago Board of Trade (CBOT) closed up amid fresh highs on Monday except for the September and December ’09 contracts. The MAY’08 contract finished at $5.672/bu, up 6.6¢/bu. The DEC’08 contract closed up 4.1¢/bu at $5.810/bu. At one point December corn traded over $6.00/bu. I believe there is a very good chance that $6.00 corn is on the horizon. The USDA report was bullish for corn amid steady ethanol demand and numbers indicating decreasing stocks will be in order. USDA lowered corn plantings to 86.0 million acres down from 93.6 million acres from last year and 1.4 million acres lower than median trade estimates. Lower production could put the ending stocks below 1 billion bu. Wet weather concerns were noted amid difficulties getting the crop planted. The supplement to Friday’s CFTC Commitment of Traders report had large speculators cutting bull positions by 37,000 lots to 146,148 contracts. Corn prices stand a good chance or remaining bullish for a few more weeks up until the next significant report. Elsewhere, corn producers in Argentina continue their strike blocking exports. Argentina is a major corn exporter. It would be a very good idea to consider selling up to 50% of the 2008 crop. Prices are expected to be good for a couple of weeks.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed limit down on Monday amid long liquidation. The MAY’08 contract finished at $11.972/bu, down 70.0¢/bu. The NOV’08 soybean contract ended at $10.894/bu, off 70.0¢/bu. Trading limits were recently increased for corn and soybeans. Daily trading limits for soybeans will increase to $1.05/bu for Tuesday. USDA’s planting intentions report showed soybean seedings increasing 18% over last year’s 63.6 mi acres to 74.8 mi acres. In 2006 U.S. producers planted 75.5 mi acres. Soybeans will be pressured on this news until the next report comes out. The November chart shows a very clear head-and-shoulder pattern. This chart could make the measuring objective of $8.52/bu. There is some limited upside potential as the November contract will most likely try to fill the gap created in today’s trading. Hopefully selling up to 40% of the ’08 crop has been done and a put option was put in place to establish a price floor.

WHEAT futures in Chicago (CBOT) were down on Monday with several contracts trading limit down. MAY’08 futures closed at $9.290/bu, off 60.0¢/bu and over$2.00/bu lower than two weeks ago. The JULY’08 contract closed at $9.370/bu, down 59.0¢/bu. Wheat daily limits increase to 90.0¢/bu for all contracts that traded limit down. USDA had placed all-wheat stocks at 710 mi bu March 1. The plantings report released today placed projected U.S. plantings at 63.6 mi acres vs. 60.4 mi acres planted in 2007. Wheat inspected for export was placed at 16.391 mi bu vs. estimates for between 15-20 mi bu. The supplement to Friday’s CFTC Commitment of Traders report had large speculators increasing bull positions in CBOT wheat by 3,000 lots to 3,420 contracts. There is still a world shortage of wheat. It is a good idea to hold off pricing any more at this time.