7 January 2009

7 minute read

North America

Happy New Year … Here we go! The headline … A three-week high by the U.S. dollar, boosted by expectations for interest rate cuts by big banks, and what U.S. President-Elect Obama’s stimulus package will do for the financial mess supported commodities. In light of this news there was talk in the markets that large speculators and funds would be rebalancing soon. Translation: More money in the big pockets – more money in the market. Have we seen this before? ☺ We’ll wait and see how the stimulus works on prices and volatility. Whatever it means one thing for sure, we’ll probably have another interesting year.

LIVE CATTLE futures on the Chicago Mercantile Exchange (CME) were mixed on Monday with the front month and the 4th-out-deferreds up and the 3 nearby-behind-the-front-month down. FEB’09LC futures closed up $0.450/cwt at $87.550/cwt; $3.75/cwt higher than last report. The APR’09LC contract closed at $90.400/cwt; off $0.350/cwt. Technical trading in February/April spreading supported the nearby February contract. This was an adjustment to the spread offset profit taking on overbought conditions on Friday. Technical signals will take over for the rest of the week as the Goldman roll begins on January 8th. The Goldman Roll will consist of rolling some February long positions into the nearby April contract. This move is tied to the Standard & Poor’s Goldman Sachs Commodity Index. Mexico resumed imports last week from most of the 30 U.S. packers it placed on a ban the week before.

Butcher shop located in downtown Mexico City.	Meat market. Oaxaca, Mexico

A firmer feel for cash cattle late last week was supportive according to a floor source. Last Friday cash cattle traded up $1/cwt at $86-87/cwt in the southern Plains in spite of packer margins in the red. The USDA 5-area price on Monday was steady at $86.22/cwt. Early Monday USDA put the choice boxed beef price at $144.06/cwt; up $0.87/cwt. According to HedgersEdge.com, the average packer margin was raised $30.95/head from last report to a negative $33.05/head based on the average buy of $85.04/cwt vs. the average breakeven of $82.52/cwt. It might be a good idea to hold of pricing any feed inputs at this time if you bought on earlier advice. It looks like the cattle markets may turn around if the financial markets strengthen.

FEEDER CATTLE at the CME followed live cattle up on Monday. JAN’09FC futures finished at $97.000/cwt, up $1.40/cwt and $8.875/cwt higher than last report. The MAR’09FC contract settled at $96.725/cwt; up $1.200/cwt and $8.800/cwt higher than last report. Carryover-buying, lower corn prices, and buy stops helped feeders. The surge in Friday’s Feeder Cattle Index and January/March bull spreading were supportive. The CME Feeder Cattle Index for January 1 was placed at $92.92/cwt, up $0.96/cwt. There were some reports from vendors that cash cattle in the much viewed Oklahoma City market spurred fundamental feelings of the market.

This sparked fund buying on the cash prices advance. Most cash markets were closed for the holidays and the four floor sources said that this strong start to the new year felt bullish. We’ll see if it holds out on any financial market news. It might be a good idea to hold off on pricing more feed until after the January 12th USDA report.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. MAR’09 corn futures closed at $4.112/bu; off 1.0 ¢ /bu but 36.0 ¢ /bu higher than last report. This contract has gained all but 4.1% back from three weeks ago. The JULY’09 contract closed at $4.214/bu; up 1.25 ¢ /bu. Strength in the soybean market on higher crude oil prices and parching corn-growing weather in Argentina was somewhat supportive. However, sluggish export selling on strength in the U.S. dollar weighed on prices. One floor source said that the market was beginning to watch the South American weather more closely. USDA put corn-inspected-for-export at 23.360 mi bu (down 3% from last week) vs. expectations between 20-25 mi bu. USDA’s last report notched less bullish fundamentals for corn due to lower exports from a souring world economy, higher input prices, and less ethanol demand. However, ethanol futures did post modest gains. The next USDA report is due out on January 12th. Ending stocks were raised accordingly as USDA lowered planting intentions. This will remain to be seen as fertilizer prices cool off and if world markets stabilize. However, that being said, corn still faces fundamental challenges in 2009. Funds sold 2,000 lots with large speculators buying that same amount near the close to rally prices. Cash corn in the U.S. Midwest was mostly steady amid slower farmer selling while freight prices dropped to reflect lower shipping costs. Corn cash bids in the U.S. Mid-Atlantic states were steady ranging from $3.60/bu- $4.11/bu. Farmers that are selling now are doing so to cash flow the 2009 crop and to take advantage of better basis. The carry from July ’09 futures to December ’09 futures is 3.9 ¢ /bu/mo vs. a 2.0 ¢ /bu/mo storing charge. If you have un-priced corn in storage it might be a good idea to price up to 35% of it. It also might be a good idea to price up to 10% of the 2009 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up putting in three-month highs on Monday. The JAN’09 soybean contract closed at $9.836/bu; up 13.75 ¢ /bu and $1.376/bu (16.3%) higher than last report. MAR’09 soybean futures closed at $9.870/bu; up 10.0 ¢ /bu and $1.162/bu (13.7%) higher than last report. Stronger crude oil prices, steady demand for U.S. soybeans by China, and dryer weather in South American soybean growing areas was supportive. Soyoil prices led the rally on strength in biodiesel feedstock demand and Chinese export demand despite a stronger U.S. dollar. A stronger U.S. dollar usually discourages U.S. exports. USDA placed soybean-inspected-for-export at 28.713 mi bu vs. expectations between 25-30 mi bu. China was the importer of 73% of this week’s U.S exports. Chinese demand will have a major impact on how long U.S. soybean prices remain higher. One troubling comment made today is that China has become concerned with U.S. soybeans recently after the discovery of treated seed beans in a shipment. Chinese inspectors will begin inspecting more U.S. soybeans as a result. Some buyers are expected to shift their orders to South American soybeans just to avoid these delays in delivery. Funds bought 3,000 lots amid what seems to be early January balancing. According to 3 floor sources more balancing is expected later in the month but could be limited because of technical signals running out of steam and neutral fundamentals. Trade data showed large speculators increasing net bull positions in soybeans. Soybean basis was down 14% in the U.S. Midwest amid a rash of farmer 2 selling on better soybean prices. Cash soybeans in the U.S. Mid-Atlantic states were steady to firm. It would be a good consideration to sell a significant portion of stored beans.

WHEAT futures in Chicago (CBOT) were up a three-month high on Monday. The MAR’09 contract closed at $6.166/bu; up 5.6 ¢ /bu and 96.75 ¢ /bu (18.6%) higher than last report. JULY’09 wheat futures were up 6.5 ¢ /bu at $6.410/bu; 95.5 ¢ /bu (17.5%) higher than last report. Technical buying, the rally in soybeans, and good export numbers were supportive while the same weighty factors that overhung corn and soybeans worked on wheat. USDA put wheat-inspected-for-export at 10.595 mi bu vs. expectations for between 5-8 mi bu. High U.S. feed wheat and corn however looks to curtail export demand. Late fund buying amid new year position rebalancing helped prices as funds bought 1,500 contracts on buystops- at-close trades. The market is watching the Turkish wheat crop as that country’s attaché reported the 2008/09 crop was 3% higher than expected. Attaché reports are not official. The wheat market shows some fundamental strength. It could be a good consideration to price up to 20% of the ’09 crop. An outof- the-money put option may not be a bad idea.

LEAN HOGS on the CME were off on Monday amid profit taking, chart-based selling, and bear spreading. FEB’09 futures closed down $1.175/cwt at $62.175/cwt; off $0.400 from last report after trading near a one-month high at the opening. The APR’09LH contract closed at $70.300/cwt; down $0.975/cwt but $1.8/50/cwt higher than last report. The JUNE’09LH contract dropped $0.425/cwt to $81.825/cwt; $3.825/cwt higher than my last report. Profit taking on the steep premium of futures to cash weighed on prices. Carry-over momentum from Friday’s higher cash markets, fresh exports to Mexico, and rumors that Russia would also resume buying U.S. pork were supportive. Steady cash hog prices are expected this week as packers fill lines for a full processing week. The latest CME Lean Hog Index was placed at $52.66/cwt; off $0.16/cwt. USDA put Friday’s pork cutout at $54.82/cwt, down $0.50/cwt. Declining packer margins got the market selling off. According to HedgersEdge.com, the average pork plant margin was placed at a positive $1.50/head; $5.15/head lower than last report. This was based on the average buy of $38.11/cwt vs. the average breakeven of $38.69/cwt.

April 2009 Feeder Cattle, January 5, 2009