Ag Weekly Online: Twin Falls, Idaho

www.midwestmarketsolutions.com

9/22/08

CORN

Corn closed the week of Sept. 19 $.21 lower. The weekly export sales report showed net sales of 325,400 MT resulted as increases for Japan (190,100 MT), Mexico (187,300 MT), Colombia (54,800 MT), Canada (25,900 MT), Lebanon (18,000 MT), and Taiwan (14,800 MT), were partially offset by decreases for unknown destinations (153,600 MT) and South Korea (58,500 MT).

Exports of 862,700 MT were up 72 percent from the previous week, but unchanged from the prior four-week average. The primary destinations were Japan (440,300 MT), Mexico (119,800 MT), Egypt (100,300 MT), South Korea (53,300 MT), Taiwan (41,100 MT), and Canada (34,200 MT).

Commercials are slowly buying the market in an attempt to accumulate inventory prior to the harvest, protecting themselves in case actual harvest data comes in below trade estimates and rallies the market. Meanwhile, the funds are selling futures contracts to them, as the funds are technical following in nature and the trend remains lower for the corn market.

Corn has likely achieved a harvest low but a close above $5.68 on the December corn charts will be needed to turn the trend higher. The charts have a positive bias as the August lows have held and as long as these lows hold, the chances are high that a low has been scored.

Recommendations

Hedgers: Hedged 40 percent of 2008 production at $7.30.

Cash marketers: Sold 40 percent of 2008 at $6.70.

Traders: Buy December corn at market on a close above $5.68 1/2.

SOYBEANS

Soybeans closed the week $.58-1/2 lower. The weekly export sales report showed net sales of 411,500 MT resulted as increases for China (114,900 MT), Japan (81,400 MT), Indonesia (64,500 MT, including 58,000 MT switched from unknown destinations), Taiwan (43,600 MT), and unknown destinations (42,000 MT), were partially offset by decreases for Canada (14,300 MT).

Exports of 221,700 MT were three and one-tenth times the previous week and 10 percent above the prior four-week average. The primary destinations were Japan (107,500 MT), China (61,200 MT), Mexico (23,800 MT), and Taiwan (16,200 MT).

Harvest data is beginning to trickle in, although harvest this fall is much later than normal due to the late maturity of the crops. A field of soybeans near Odebolt, Iowa produced 45 bushels per acres, a field by Pocahontas, Iowa produced 25 bushels per acre, while a couple of fields near Alta, Iowa produced over 50 bushels per acre. As you can see, early yield results from the normally high-producing soybean state of Iowa are variable.

Expect more harvest data over the next two weeks and once a yield trend begins to develop, the market should move away from trading economic factors and revert to fundamentals. Technically, November soybeans need a close above $12.34 to turn the trend back to the upside.

Recommendations

Hedgers: Hedged 50 percent of 2008 at $15.20. Hedge 10 percent of 2008 production at $16.70. Long November 1440 calls on 25 percent of 2008 production.

Cash marketers: Sold 50 percent of 2008 at $13.80.

Traders: Buy November soybeans at market on a close above $12.34.

WHEAT

For the week, Chicago wheat closed $.01-1/4 lower; Kansas City wheat $.03 lower and Minneapolis wheat $.02-3/4 lower. The weekly export sales report showed net sales of 657,300 metric tons were up 44 percent from the previous week and 21 percent from the prior four-week average. Increases reported for Nigeria (117,200 MT), Japan (115,600 MT), the Philippines (99,500 MT), Iran (68,900 MT), Mexico (65,100 MT), South Korea (46,500 MT), and Venezuela (39,800 MT), were partially offset by decreases for Guatemala (43,600 MT), Ghana (4,700 MT), Belize (1,100 MT), and Panama (1,100 MT).

Exports of 536,400 MT were down 22 percent from the previous week and 34 percent from the prior 4-week average. The primary destinations were Iran (114,900 MT), Japan (84,600 MT), Egypt (63,900 MT), Mexico (52,100 MT), Colombia (44,900 MT), Malaysia (34,800 MT), and South Korea (25,600 MT).

Demand remains the key driving force for price discovery this time of year and demand fundamentals are not strong enough to push prices higher. Meanwhile, growing world wide supplies are weighing on values. A higher U.S. dollar figures to increase the price of U.S wheat and this should hurt long term U.S. wheat demand and pressure prices. Foreign buyers are turning to cheaper ports of origin such as Russia and the Ukraine.

Commercials are returning to the buy side again, which should not only support prices but give producers a rally to sell into. Commercials are now net long the most bullish position since May of 2007.

Recommendations

Hedgers: Hedged 55 percent of 2008 production at $11.05 Kansas City and 30 percent of September Minneapolis $11.90. Hedge 15 percent of 2008 at $11.34 KC and/or $11.30 Minneapolis. Hedge 10 percent of 2009 production at $10.30 Kansas City.

Cash marketers: Sold 55 percent of 2008 production at $8.50 Kansas City. Sold 30 percent of 2008 spring wheat at $10.90 Minneapolis. Sell 15 percent of 2008 at $11.34 KC and/or $11.30 Minneapolis. Sell 10 percent of 2009 production at $10.30 Kansas City.

Traders: Buy December Chicago wheat at market if it closes above $7.72-1/2.

LIVE CATTLE

Live cattle ended the week $.60 lower while feeder cattle ended $3.05 lower. The cash trade occurred last week at lower money in the North but at steady money once again in the South. Cash traded in the North at $149 to $151, $2 to $4 lower compared with the previous week. Live trade in Kansas and Texas was $99, steady compared with the previous week. This was the third consecutive week of steady cash trade in the South. Feedlots expect cash trade to improve over the next several weeks as numbers are expecting to tighten up during the last half of the month of September.

Over the last couple of weeks, I have been looking for October to tighten its premium over the cash market. October is finally in line with the cash, so technical selling pressure should begin to subside. Technically, the charts are solidly lower and to the technical trend-following funds, this action is bearish and will induce additional fund selling until the technical trends turn higher. December needs to close above $105.40 to turn the technical trend higher.

Recommendations

Hedgers: Hedged 50 percent of October marketings at $103.00. Hedged 50 percent of December marketings at $107.20.

Feed costs: Producers need to have coverage through harvest in the cash market or at the money December corn and call options. Roll the call options to March.

Traders: Buy December at market if there is a close above $105.40.

LEAN HOGS

Lean hogs closed the week $2.10 higher. Since last week’s newsletter, the market has chopped sideways, looking for the direction of the next move. The cash market has traded in a similar manner. The fundamentals are sloppy and the trend is sideways, leaving the funds with little direction. The month of October is pork month, which should see retailers feature pork over other meats, which will help stimulate demand.

Looking at the weekly charts, I have a big concern regarding the lack of commercial buying. Commercials remain net short despite the sharp drop in prices. Normally, commercials will be aggressive buyers, however, their lack of aggressive buying indicates they do not believe prices have fallen far enough and have stayed away from the long side.

Recommendations

Hedgers: Hedged 100 percent of fall marketings at $75.85 December. Lift hedges on a close above $69.52.

Feed costs: Producers need to have coverage through harvest in the cash market or at the money December corn and meal call options.

Traders: Buy December at market if there is a close above $69.52.