Tri-State Neighbor: South Dakota Farm Newspaper

February looks to be another bullish month for corn.

With the bullish January supply/demand report fresh in the minds of traders, the market will search for price discovery as end users are strong buyers on price weakness. But, technical traders note the overbought status of corn and wait for the market to correct before entering into the market again.

The other factor influencing corn prices in February is the tight ending stocks figure reported by the USDA in the January supply/demand report. The endings stocks, estimated at 752 million bushels, is the second smallest in history and will also force new crop corn prices to move sharply higher in an effort to entice producers to plant more corn acres in 2007 than in 2006 to meet the record demand base of corn. With demand forecast at 11.760 billion bushels, United States producers will need to plant at least 8 million to 10 million more acres in 2007 to begin to rebuild the carryover stocks and ensure the United States will not run out of corn.

December corn has already established a new all-time high price and the next upside price targets are $4.20 to $4.30. Annual highs should be scored this spring as the market competes for acres during the planting season.

Recommendations:

Hedgers: Hedged 55 percent of 2006 production at $3.40. Long July 360 puts on 25 percent of production. Hedged 20 percent 2007 production at $3.45 December 2007. Hedge 10 percent at $4.25 December.

Cash Marketers: Sold 55 percent of 2006 production at $3.40. Sold 20 percent of 2007 production at $3.45 December 2007. Sell 10 percent at $4.25 December.

Traders: Buy December at $3.85.

Soybeans:

February looks to bring the beginning of slower export sales as early planted beans in northern Brazil begin to come to harvest and hit the world market at a price about $6 a ton under any United States posted price.

It is the period between mid-February and May that South America overtakes the United States as the primary port of origin for beans. This will leave weather on late maturing crops as the sole bullish factor for South American soybean values.

February in Brazil is like July here as it’s a key yield-developing month for three-quarters of the crop. If weather turns hot and dry, prices will rally sharply, however, with good rains across the country the attention of soybean traders will shift to the corn market.

The USDA supply/demand report was bullish in January as the USDA cut 2006 production slightly and estimated ending stocks at 575 million bushels. Ahead of the February USDA supply/demand report, traders will anticipate the USDA to leave ending stocks unchanged due to the record strong demand pace for soybeans.

The soybean’s main job is to compete with corn for acres into the spring planting season. Thus, November soybean prices are forced to rally along with corn to compete for acres in 2007. Technically, November soybeans will find resistance at the 2004 highs of $7.99.

Recommendations:

Hedgers: Hedged 60 percent of 2006 production at $6.75. Long July 660 puts on 25 percent of production. Hedged 20 percent of 2007 production at $7 November. Hedge 10 percent at $7.90 November.

Cash Marketers: Sold 60 percent of 2006 production at $6.75. Sold 20 percent of 2007 production at $7 November. Sell 10 percent at $7.90 November.

Traders: Buy November at $7.42.

Cattle:

The January edition of the monthly USDA cattle on feed report showed the largest on feed inventory for the month of January since the data series began in 1996.

The January on feed estimate came in at 101 percent, 1 percent larger than last year and 6 percent above 2005. The large on feed figures can be directly attributed to producers selling cattle at lighter weights to compensate for the higher corn prices.

Placements are well below last year at 91 percent of 2006, also a direct result of the high feed costs. Rather than placing feeder calves into feedlots, producers chose to slow placement efforts to conserve feed expense.

The cash market will continue to remain soft as packers know they have large supplies of cattle available to them and are content to buy hand to mouth. Higher feed costs will continue to weigh on feeder cattle prices and should be supportive for the summer month to late year cattle prices as placement figures are expected to remain below a year ago.

Recommendations:

Hedgers: Hedged 50 percent of first quarter marketings at $92.50 basis February. Lift hedges at $88.10. Hedge 25 percent of marketings at $95 basis April.

Cash Marketers: Be willing to move cattle above $142.

Traders: Buy June/sell August live cattle at 80 cents June.

Wheat:

February is the last month before the winter wheat crop breaks dormancy. Thus price direction will come from demand.

Demand trends have been well behind last year due to much higher price levels and the trend of slow United States wheat exports. That looks to continue this month as Australian and Argentine production will cut into United States exports.

New crop spring wheat, traded on the Minneapolis Grain Exchange, has rallied to fresh contract highs in an effort to stay price competitive with corn and soybean markets. This trend looks to continue into spring planting. For winter wheat, any bounces in prices due to winterkill should be viewed as a selling opportunity as February is not a key yield development month.

Wheat has seasonal price weakness during the entire month of February and we should see pressure against prices into the end of the month as the delivery period for March futures is March 1.

Any remaining long positions in March will be subject for delivery, thus these longs will sell out of their positions and apply additional pressure to prices into the end of February.

If corn and soybeans rally, it will pull wheat traders out of their bear spread positions and give wheat a boost.

Recommendations:

Hedgers: Hedged 40 percent 2007 production at $5.04 December KC or 20 percent at $5.01 December Minneapolis. Long July KC 480 calls on 20 percent of hedges.

Cash Marketers: Sold 40 percent 2007 production at $5.04 December KC or 20 percent of 2007 production at $5.01 December Minneapolis.

Traders: Buy September Minneapolis $5.04.

Hogs:

Strong United States export sales combined with rising corn costs have pushed summer month hog prices into new contract highs.

The job of the hog market is to provide an incentive for producers to continue to purchase and raise feeder pigs in 2007.

With the rising feed costs, producers are expected to slowly start herd liquidation into the summer rather than pay a premium for very expensive corn values. Therefore the summer month hog values should continue to push higher with $80 in the June contract a likely target for the market to reach. The downtrend line has just been broken in the February and April contracts, indicating traders will unwind the bear spreads and push the front months higher.

Recommendations:

Hedgers: None recommended at this time.

Cash Marketers: Stay current with marketing inventory.

Traders: Buy June at $73.90.

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