Market Watch: Cattle markets should stabilize
By Brian Hoops, president, Midwest Market Solutions, Inc.
Wednesday, November 5, 2008 5:21 PM CST
CORN
Corn closed the week of Oct. 31 $.28-3/4 higher. The weekly export sales report showed net sales of 413,100 MT were down 48 percent from the previous week and 50 percent from the prior four-week average.
Increases reported for Japan (228,200 MT), Mexico (86,000 MT), South Korea (75,200 MT, including 105,000 MT switched from unknown destinations and decreases of 55,000 MT), Canada (40,000 MT), El Salvador (28,200 MT, including 25,900 MT switched from Guatemala), and Taiwan (12,900 MT), were partially offset by decreases for unknown destinations (43,300 MT), Guatemala (17,400 MT), and Colombia (16,300 MT).
In an unprecedented move, the USDA released a revised October supply/demand report in which it lowered harvested acres by 1 million and production was lowered by 167 mb to 12.033 bb. Exports were also lowered to 1.950 bb, leaving the working ending stocks estimate at 1.088 bb. Given the lower harvested acres and slightly lower production figure, the USDA likely will continue to shave off the production figure by reducing the size of the crop. Demand remains weak, but could improve with prices trading below $4.00 per bushel.
Technically, corn remains in a solid downtrend. It will take a close above $4.26-1/2 to change the trend on the daily charts.
Recommendations
Hedgers: Hedged 40 percent of 2008 production at $7.30. Re-own 20 percent with March 440 calls once the trend changes.
Cash marketers: Sold 40 percent of 2008 at $6.70.
Traders: Buy December corn at market on a close above $4.26-1/2.
SOYBEANS
Soybeans closed the week $.61-1/2 higher. The weekly export sales report showed net sales of 1,457,300 MT - a marketing-year high - were double the previous week and two and one-tenth times the prior four-week average.
Increases reported for China (788,700 MT, including 165,000 MT switched from unknown destinations), unknown destinations (380,000 MT), Japan (77,300 MT), the Netherlands (65,300 MT), Hong Kong (55,000 MT), and Mexico (50,600 MT), were partially offset by decreases for Egypt (33,600 MT), Italy (20,000 MT), and Colombia (14,400 MT).
In an unprecedented move, the USDA issued a revised October supply/demand report. The USDA lowered harvested acres by 1 million and production by 45 million bushels, although it left the per bushel average unchanged. In a curious move, the USDA lowered the export forecast by 20 mb, thus reducing ending stocks to by only 15 mb to 205 mb.
I feel it is more probably than not, the USDA will lower the production figure in the November report and be forced to raise their export forecast, as sales so far this year are record strong and already stand at 51 percent of the projected USDA total.
Seasonal trends are now higher for soybeans. Technically, it will take a close above $9.65 to break out of the downtrend.
Recommendations
Hedgers: Hedged 50 percent of 2008 at $15.20. Long March 1400 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 $9.65-1/2.
WHEAT
For the week, Chicago wheat closed $.20 higher; Kansas City wheat $.26 higher and Minneapolis wheat $.45-3/4 higher.
The weekly export sales report showed net sales of 460,400 metric tons were up 20 percent from the previous week, but down 7 percent from the prior 4-week average. Increases reported for Egypt (68,500 MT), Spain (65,000 MT), Iran (60,000 MT), Thailand (45,000 MT), Nigeria (37,100 MT), Canada (34,000 MT), Mexico (33,400 MT), and Japan (30,100 MT), were partially offset by decreases for Guatemala (6,400 MT), Cameroon (2,000 MT), and unknown destinations (1,500 MT). Net sales of 36,000 MT for delivery in 2009/10 were for Mexico.
Overall export forecasts remain approximately 31 percent below last year’s export pace, although sales of SRW is at 97 percent of the USDA projection. This week, Egypt purchased 120,000 mts of wheat from Russia, snubbing the U.S. for the second consecutive week.
Winter wheat seedings are nearly finished as the USDA estimated seedings at 84 percent completed as of October 26. Key states stand like this: Nebraska is 98 percent seeded, Kansas is 83 percent, Oklahoma 86 percent and Texas is 81 percent seeded. Heavy moisture last week should be excellent for the newly seeded wheat as it will be able to grow quickly before entering into dormancy.
Technically, wheat remains in a solid downtrend and prices will need to close above $5.69 1/2 to break out of the downtrend.
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 $5.69-1/2.
LIVE CATTLE
Live cattle ended the week $5.90 higher, while feeder cattle ended $2.42 lower. The cash trade occurred last week at steady to higher money. Cash traded in the North at $138 to $143; steady to as much as $4 higher compared to the previous week. Live trade in Kansas and Texas occurred at $91 to $92, steady to $1 higher than the previous week.
The stock market remains volatile, but has shown signs of stabilizing. This should have a calming effect on the cash and futures markets as traders will anticipate the worst is over for the economy. If the stock market can stabilize and recover, look for the cattle market to find support, and shorts will cover positions, giving the market a much needed short-covering rally.
Technically, the charts remain in a downtrend and to the technical trend following funds, this means to continue to sell major rallies. December needs to close above $92.70 to turn the technical trend higher.
Recommendations
Hedgers: Hedged 50 percent of December marketings at $107.20. Cover December hedges on a close above $92.70.
Feed costs: Producers need to have coverage in the cash market or at the money March corn call options.
Traders: Buy December at market if there is a close above $92.70.
LEAN HOGS
Lean hogs closed the week $3.70 lower. The hog market is similar to the cattle market in terms of anticipating the sluggish economy will have a negative effect on consumer demand for pork. Demand, particularly export demand, has slowed over the last six months, while the supplies of pork have remained large. As the economy continues to struggle, it is likely demand for pork will remain soft until next spring when the grilling season begins and will stimulate fresh demand.
Technically, weekly charts are finding support for prices between $50-$55. If the stock market can stabilize, this support level should hold and provide a tradeable bottom. Charts posted a new low close to end the month, a bearish monthly close.
Recommendations
Hedgers: Hedged 100 percent of fall marketings at $75.85 December. Lift hedges on a close above $59.32.
Feed costs: Producers need to have coverage through harvest in the cash market or at the money March corn and meal call options.
Traders: Buy December at market if there is a close above $59.00.
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