Tri-State Neighbor: South Dakota Farm Newspaper

Corn prices pushed to fresh 10-year highs in the spot contracts, trailing only the 1996 marketing year as the most bullish year of all-time.

However, in 1996, July corn made a high in February of $3.82, compared to this year July corn made a high $4.58 during the month of February.

December corn continues to make new all-time highs, easily eclipsing the previous all-time highs of $4 in October 1974.

The market is still faced with two jobs this year, ration the old crop stocks which can only be accomplished by forcing prices higher. And secondly to buy enough acres this spring to rebuild ending stocks. Export trends have slowed from previous levels; however, increased feed demand and record-large ethanol usage mandates that old crop prices continue to move higher to find a price level that will ration the crop. New crop corn prices must stay strong and should move higher into early April 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 11.76 billion bushels, United States producers will need to plant at least 10 million to 12 million more acres in 2007 to begin to rebuild the carryover stocks and ensure the United States will not run out of corn. 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. Hedged 30 percent 2007 production at $3.85 December 2007.

Cash Marketers: Sold 55 percent of 2006 production at $3.40. Sold 30 percent of 2007 production at $3.85 December 2007.

Traders: Long July/short December at 20 cents July over December.

Soybeans:

The soybean market has one simple job, compete with corn this spring to maintain an adequate supply of soybeans to meet the growing world soybean needs. Soybeans cannot lose too many acres in 2007 or risk ending stocks falling substantially and in turn putting the soybean market in a tight stocks situation similar to corn.

However, with $8.30 new crop soybean futures, United States producers in the Delta region will have second thoughts about switching over to corn. In addition to more trips through the field to grow corn, there is more fertilizer, seed and chemical costs to consider when planting corn, not to mention more production risk in locations with a smaller growing season or too hot of a climate. Thus, similar to the corn market, soybeans should rally into the spring planting time frame to induce as many seeded acres as possible, before establishing seasonal and possible annual highs.

For old crop inventory, record demand has pulled old crop prices higher. However, South America’s growing season will come to an end in March and United States export sales will begin to slow as early planted beans in northern Brazil begin to come to harvest and hit the world market at a price cheaper than any posted United States price. This should limit the upside for old crop to futures to below major long-term resistance of $9.

Recommendations:

Hedgers: Hedged 60 percent of 2006 production at $6.75. Hedged 40 percent of 2007 production at $7.76 November.

Cash Marketers: Sold 60 percent of 2006 production at $6.75. Sold 40 percent of 2007 production at $7.76 November.

Traders: Stand aside.

Cattle:

The February cattle on feed report was bullish for the market as placements came in at 77 percent compared to a year ago. January placements were the lowest since the data series began in 1996. Placements fell due to increased feed costs and harsh wintery weather across the Plains. Placements should remain light during the month of February but then begin to rebound into the spring during March and April as cattle come off winter wheat pastures and enter the feedlots.

Rising live cattle prices into the summer and fall months will encourage producers to place cattle into feedlots due to increased profitability. On feed supplies were also friendly for the market coming in at 97 percent compared to last year. This was the first time on feed supplies came in below the previous month since October 2005. The on feed totals peaked at over 12 million head on feed in February of last year and trended lower, and it is likely this trend will be repeated in 2007. The strongest demand trends will occur this summer when supplies should be the tightest, leaving large upside potential in the June through October time frame.

Recommendations:

Hedgers: Hedged 50 percent of first quarter marketings at $92.50 basis February. Lift hedges at $89.50. Hedged 25 percent of marketings at $95 basis April.

Cash Marketers: Be willing to move cattle above $147.

Traders: Buy April/sell October at $1 premium April.

Wheat:

New crop wheat contracts have rallied to new contract highs as winter wheat is breaking dormancy in the southern United States and the market is adding in weather premium to prices. Spring wheat is trying to rally to keep pace with the rising corn and soybean markets in order to avoid having spring wheat producers plant higher valued corn and soybeans instead of spring wheat.

There has also been talk of United States producers tearing up winter wheat and planting corn and soybeans this spring. Thus, the job of the wheat market is to rally enough into the spring planting time frame to discourage producers from planting less spring wheat acres. Seasonal tendencies for wheat are now higher the Voice from the Tomb is buying wheat as wheat breaks dormancy and grows into maturity and is harvested in May and June. The tight world ending stocks could be very explosive for wheat this spring as any loss of acres and adverse weather from March to May will send prices soaring higher.

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: Long September Minneapolis at $5.11. $5.15 stop loss. $5.52 target.

Hogs:

Strong United States export business combined with rising corn costs continues to push summer and fall month hog prices into new contract highs. United States pork exports in 2006 finished well ahead of 2005 and 30 percent higher than the five-year average. This strong export pace will continue to be a supportive feature for hog values in 2007.

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 feed costs. 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. If feed costs peak out this spring or summer, hog prices are likely to begin to peak out, which will pressure summer hog values. Producers should begin to slowly hedge summer month hog supplies at very profitable price levels while trend is higher.

Recommendations:

Hedgers: Sell 25 percent second quarter marketings at $79 basis July.

Cash Marketers: Stay current with marketing inventory.

Traders: Stand aside.

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