14 January 2009

7 minute read

North America

Due to the Holiday next Monday the Commodity report will not be published. It will resume week after next on 26 January.

USDA’s World Agriculture Supply Demand Estimates (WASDE) report was released yesterday morning at 8:30 am Eastern time. The numbers are bearish. Corn and soybean ending stocks were raised; demand for corn was lowered in every way; a small increase in soybean demand was mildly supportive; and all markets I report on except for Feeder Cattle took a blow today. Crude oil prices plunged nearly 8 per cent on lowered demand expectations while a stronger US dollar weighed on prices. When the dollar is stronger the market trades expectations exports will be hurt. Commodity prices were not expected to fall this much even as many analysts expected bearish USDA WASDE numbers. A gloomy economy and last Friday’s report by the FED that the US unemployment rate was the highest it’s been in 16 years influenced trading to lower-than-expected levels.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were down on Monday. FEB’09LC futures closed down $0.200/cwt at $82.900/cwt; $4.65/cwt lower than last week. The APR’09LC contract closed at $86.5/cwt; off $0.325/cwt and $3.90/cwt lower than a week ago. Worries about the weakening economy and lower cash prices last week burdened the market. Fund spreading in April/February futures pulled support out from under the February contract. The USDA 5-area price on Monday was placed at $83.76/cwt; $2.46/cwt lower than last Monday. Low packer margins pressured cash cattle. According to HedgersEdge.com, the average packer margin was raised $13.85/head from last report to a negative $17.10/head based on the average buy of $85.54/cwt vs. the average breakeven of $84.22/cwt. Odd as it sounds, lower corn prices pressured deferreds because, according to two floor sources, traders thought that lower corn prices would spur cattle production. And of course, a higher US dollar put the brakes on prices as well. USDA put the choice boxed beef price at $147.09/cwt; up $1.61/cwt. It might be a good idea to price short-term feed inputs at this time. Sell cattle when ready.

FEEDER CATTLE at the CME closed up on Monday being the only bright spot in commodities. JAN’09FC futures finished at $95.200/cwt, up $1.10/cwt but $1.800/cwt lower than last week. The MAR’09FC contract settled at $93.325/cwt; up $0.650/cwt but $3.400/cwt lower than last Monday. Feeders found support in buy stops and corn’s weakness. Technically, traders put together January/March bull spreads (buying January futures and selling March futures). A bear spread is the opposite, selling the nearby and purchasing a deferred contract. Bull spreading limited gains in the March contract while supporting the January. Cash feeders in Oklahoma City were up $4-$7/cwt last week. The CME Feeder Cattle Index for January 8 was placed at $96.52/cwt, up $0.09/cwt. If you need feed in this cold weather now is the time to price about 2 months worth.

CORN futures on the Chicago Board of Trade (CBOT) closed limit down on Monday. MAR’09 corn futures closed at $3.806/bu; off 30.0 ¢ /bu and 30.75 ¢ /bu lower than last week. The March contract was trading synthetically at $3.73/bu. A contract trades synthetically when a combination of puts and calls mimics the payout of the actual futures contract. A synthetic long futures contract is created by combining long calls and short puts. A synthetic short futures contract is created by combining short calls and long puts. In order for both combinations to be identical to a futures position, the options must have the same expiry dates and strike prices. Traders use this sophisticated strategy sometimes to avoid margin calls in a very volatile market. The JULY’09 contract closed at $4.014/bu; off 30.0 ¢ /bu and 20.0 ¢ /bu lower than a week ago. New corn trading limits will be 45.0 ¢ /bu on Tuesday’s opening bell and will revert back to the standard 30.0 ¢ /bu when no contract month closes at an expanded limit bid or offer. The bearish USDA report was the main culprit as profits were taken amid a skittish market and recent price momentum built mostly technical signals vs. phantom fundamental strength. USDA raised US corn production 81 mi bu to 12.101 bi bu, well above expectations of 11.975 bi bu. Corn ending stocks were raised 316 mi bu to 1.79 bi bu. Total use was lowered 235 mi bu to 11.95 bi bu while the average farmer selling price was lowered 10.0 ¢ /bu on both sides of the range to between $3.55/bu-$4.25/bu. All demand categories for corn were lowered especially noting decreased ethanol use by 100 mi bu to 3.6 bi bu. Exports were lowered by 50 mi bu to 1.75 bi bu. Since the numbers were more bearish than expected the market turned limit down. Exports were also disappointing with USDA placing corn-inspected-for-export at 20.013 mi bu vs. expectations between 24-29 mi bu. Dry weather in Argentina’s corn region was mildly supportive. Funds sold 4,000 lots in a get-out-of-dodge attitude as large speculators decreased net bear positions for the week ended 6 January. Cash corn in the U.S. Midwest and the Mid-Atlantic States was mostly steady amid slow farmer selling after the market opened. Sales were brisk ahead of open outcry trading but pretty much shut down by mid-morning on falling futures. Last week’s advice was to sell up to 35 per cent of any un-priced corn in the bin. Hold off on pricing any more of the 2009 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down on Monday with the March and May contracts closing limit down. The JAN’09 soybean contract closed at $9.540/bu; off 83.5 ¢ /bu and 29.75 ¢ /bu lower than last week. There are no trading limits on the January contract as it is in delivery status. MAR’09 soybean futures closed at $9.660/bu; off 70.0 ¢ /bu and 21.0 ¢ /bu lower than a week ago. Limits will increase to $1.05/bu for Tuesday. Spillover weakness in the corn market and sell stops being triggered on technical selling took value from the market. USDA’s WASDE report was bearish for soybeans also. USDA raised soybean ending stocks by 20 mi bu to 225 mi bu on 38 mi bu more production based on a projected yield increase of 0.3 bu/ac and a slight increase in harvested acres. The yield increase surprised traders. Use was trimmed by 21 mi bu to 2.948 bi bu on decreased crushings and higher imports. USDA lowered the crush due to lower U.S. feed demand. The average US farmer price was tightened raising the lower end 25.0 ¢ /bu to $8.50/bu and lowering the higher end 25.0 ¢ /bu to $9.50/bu. Even though the market reacted bearishly today there is still fundamental strength. Drought in South America was supportive. Soybeans-inspected-for-export was placed at 23.228 mi bu vs. expectations for between 25-30 mi bu. China bought 399,000 tonnes (14.67 mi bu) or 63.2 per cent of US exports. Funds sold over 6,000 contracts as large speculators increased net bull positions. Cash soybeans in the US Mid-Atlantic states were much weaker after the markets opened on Monday morning. Hold off on any more soybean sales for now.

WHEAT futures in Chicago (CBOT) were down on Monday. Influenced by sliding corn and soybean prices wheat took a hit today. The MAR’09 contract closed at $5.696/bu; off 59.75 ¢ /bu and 47.0 ¢ /bu lower than last week. JULY’09 wheat futures were down 59.25 ¢ /bu at $5.940/bu; 47.0 ¢ /bu lower than week before last. Limits on trading will be raised to 90.0 ¢ /bu cents because trading was limit down at times. The USDA increased wheat plantings by 100,000 acres to 63.1 mi ac. This was less than traders expected. US wheat ending stocks were increased 32 mi bu to 655 mi bu. Total US use was lowered 32 mi bu to 2.26 bi bu. The average farm-gate price was tightened a dime on both ends of the price range to $6.50/bu-$6.90/bu. Exports were supportive as USDA placed wheat-inspected-for-export at 19.613 mi bu vs. expectations for between 9-15 mi bu. Pakistan and Iraq were major buyers. Ukraine reported a record 53.3. mi tonne (1.958 bi bu) crop. It would be a good consideration to hold off pricing any more wheat to see where the market will settle.

Further Reading

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You can view the latest WASDE report by clicking here.