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Market Watch: Oil markets, economy become price indicators for corn
Corn closed the week on Dec. 12 at $.66 higher. The weekly export sales report showed net sales of 928,700 MT were 2-7/10th times the previous week and 2-3/10th the prior four-week average.
Increases reported for Mexico (586,200 MT), Japan (365,100 MT, including 45,000 MT switched from unknown destinations), Egypt (60,000 MT), Panama (29,600 MT, including 22,500 MT switched from Guatemala), El Salvador (17,200 MT, including 16,800 MT switched from Guatemala), and Taiwan (14,000 MT), were partially offset by decreases for unknown destinations (57,900 MT), Colombia (46,600 MT), Guatemala (35,400 MT), and Costa Rica (25,500 MT). Net sales of 130,000 MT for delivery in 2009/10 were for Mexico.
For the marketing year, corn sales are 38 percent of the USDA’s projection. In fact, exports are the slowest since 2002 and 15 percent below the five-year average.
The economy and the crude oil market are as much as price indicators for the corn market as the traditional fundamentals. Traditional fundamentals are bearish, but a rally in the economy and crude oil could lift the corn market. Technically, corn rallied off of strong weekly support and must maintain closes above the $3.73 area on the weekly charts.
Recommendations
Hedgers: Hedged 40 percent of 2008 production at $7.30. Long $3.60 March puts on 60 percent of 2008 production.
Cash marketers: Sold 40 percent of 2008 at $6.70.
Traders: Stand aside.
SOYBEANS
Soybeans closed the week $.70-1/2 higher. The weekly export sales report showed net sales of 809,800 MT were 2-1/4 times the previous week and 34 percent above the prior four-week average.
Increases reported for China (636,300 MT, including 165,000 MT switched from unknown destinations), the Netherlands (116,300 MT, including 110,000 MT switched from unknown destinations), Turkey (56,000 MT, including 40,000 MT switched from unknown destinations), Egypt (45,000 MT), and Morocco (25,000 MT), were partially offset by decreases for unknown destinations (93,200 MT). Net sales of 2,000 MT for 2009/10 delivery were for Japan.
U.S. soybean exports have reached 65 percent of the USDA forecast for the marketing year. This strong demand trend should continue throughout the winter as the United States is the only port of origin for the world’s soy needs. In addition, China purchased 236,000 MT of U.S. soybeans last week, that will show up in this week’s export sales report.
Technically, a double bottom was broken on the January soybean chart, however, the March chart shows signs of breaking out of the long term downtrend. Watch the crude oil for signs that it is breaking out of its downtrend as this would be a bullish development for the soy complex.
Recommendations
Hedgers: Hedged 50 percent of 2008 at $15.20. Long March 1400 calls on 25 percent of 2008 production. Long $8.60 March soybean puts on 50 percent of 2008 production.
Cash marketers: Sold 50 percent of 2008 at $13.80.
Traders: Stand aside.
WHEAT
For the week, Chicago wheat closed $.49 higher; Kansas City wheat $.40-1/2 higher and Minneapolis wheat $.43 higher. The weekly export sales report showed net sales of 239,300 metric tons were up 15 percent from the previous week, but down 32 percent from the prior four-week average.
Increases reported for Japan (84,400 MT), Colombia (71,500 MT), Iran (57,600 MT, including 60,000 MT switched from unknown destinations and decreases of 2,500 MT), Thailand (29,000 MT), Mexico (13,800 MT), and the Dominican Republic (11,500 MT), were partially offset by decreases for unknown destinations (47,900 MT), Guatemala (6,600 MT), and Venezuela (4,000 MT).
With 46 weeks into the marketing year, U.S. wheat sales stand at 73 percent compared with last year’s strong sale performance. The winter wheat crop has entered dormancy with near-record-high crop ratings. Ratings as of Nov. 24 stood at 66 percent g/e. This compares very favorably to last year’s rating of 45 percent.
Wheat will react to the U.S. dollar as a higher dollar will indicate U.S. wheat exports will remain slow as this will make U.S. wheat appear more costly compared to competing foreign countries, however, a break in the dollar should be bullish for wheat as a cheaper dollar will indicate cheaper wheat values and foreign buyers will turn to the United States for business. Technically, wheat remains in a downtrend and will need a close above the November highs to break the trend.
Recommendations
Hedgers: Hedged 55 percent of 2008 production at $11.05 Kansas City and 30 percent of September Minneapolis $11.90. Long $5.50 March KC puts and/or $5.90 Minneapolis March puts on 30 percent of 2008 production.
Cash marketers: Sold 55 percent of 2008 production at $8.50 Kansas City. Sold 30 percent of 2008 spring wheat at $10.90 Minneapolis.
Traders: Stand aside.
LIVE CATTLE
Live cattle ended the week $1.77 higher, while feeder cattle ended $.52 higher. The cash trade occurred last week at lower money, defeating early-week cash optimism that cash would be steady. Cash traded in the North at $133; $5.00 lower compared to the previous week. Live trade in Kansas and Texas occurred at $84, $3.00 lower than the previous week. Plunging cutout values combined with a free-falling futures market weighed on the cash trade.
Last week, the USDA placed weekly beef export sales for last week at 7,100 tons, up from 3,800 tons the previous week with 2,600 tons sold to Mexico and 1,500 tons to South Korea. Exports were put at 7,700 tons, up from 6,100 tons previous week with 3,200 tons to Mexico and 800 tons to South Korea.
In a separate report, USDA estimated beef exports for 2008 at 1.86 billion lbs., an increase from 1.841 billion estimated in November. The 2009 export estimate remained at 1.92 billion lbs. At last week’s Oklahoma City auction, demand for feeders remains light with feeders steady to down $3.00.
Recommendations
Hedgers: Hedged 50 percent of December marketings at $107.20. Covered December hedges at $92.70. Buy 100 percent of February marketings with $90 February puts if February rallies to $90.00
Feed costs: Producers need to have coverage in the cash market or at the money March corn call options.
LEAN HOGS
Lean hogs closed the week $1.42 lower. Cash-market weakness prevailed last week, pulling futures lower as well. Immediately after the Thanksgiving holiday, the cash market began to rally, as buying interest ahead of the Christmas holiday lifted hams. However, it appears that buying interest has dried up, allowing the cash market to soften as well.
Higher corn prices should bode well for a rally in the deferred contracts, which will allow for a hedging opportunity. Average Iowa-Minnesota hog weight for last week at 269.3 lbs. versus 267.8 lbs. previous week and 270 lbs last year. The Census Bureau reported pork exports for the month of October were 30 percent larger than last year. If the economy can must a recovery, look for demand to improve as well and prices should slowly follow.
Recommendations
Hedgers: Hedged 100 percent of fall marketings at $75.85 December. Lifted hedges at $56.85.
Feed costs: Producers need to have coverage through harvest in the cash market or at the money March corn and meal call options.
Traders: Long December at $56.85. Exited at $59.05.
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