Tri-State Neighbor: South Dakota Farm Newspaper

The March supply/demand report held little fanfare for the corn market as the USDA left corn ending stocks unchanged from February at 752 million bushels. In fact, this was the second consecutive month of stabilizing corn ending stocks. The price of corn also reflects a stable price level.

The reason for the relatively flat corn prices is simple. With the job of the market to ration the old crop ending stocks and prevent the United States from running out of corn, the market has found a price level that will do that as evidenced by the stabilized stocks level over the last 60 days. If renewed demand begins to resurface, the market will again be forced higher in an attempt to ration the crop. However, with demand trends slowing, prices may slide lower until better demand news returns.

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; hedge 15 percent at $4.70. Hedged 30 percent of 2007 production at $3.85 December. Hedge 10 percent at $4.50 July 2008.

Cash Marketers: Sold 55 percent of 2006 production at $3.40; sell 15 percent at $4.70. Sold 30 percent of 2007 production at $3.85 December. Sell 10 percent at $4.50 July 2008.

Traders: Long July/short December at 20 cents July over December. Hold through acreage report.

Soybeans:

The March supply/demand report also held little fanfare for the soybean market as the USDA left soybean ending stocks unchanged from February at 595 million bushels. In fact, this was the second consecutive month of stabilizing soybean ending stocks. It was surprising the USDA did not increase the United States export forecast considering the United States has sold 937 million bushels so far this marketing year and with just under six months to go in the marketing year, the United States has to only export approximately 170 million bushels to reach the USDA forecast of 1.1 billion bushels.

As the marketing season matures, look for the USDA to increase the United States export forecast. From now until the planting season commences, 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. Soybeans should rally into the spring planting time frame to induce as many seeded acres as possible, before establishing seasonal and possible annual highs.

The South American soybean harvest should begin to cut into the United States exports, which will limit the upside for soybean futures. Seasonals are higher into May, making this an excellent opportunity to sell old crop inventory into the seasonal highs.

Recommendations:

Hedgers: Hedged 60 percent of 2006 production at $6.75; sell 10 percent at $8.20. Hedged 40 percent of 2007 production at $7.76 1/4 November.

Cash Marketers: Sold 60 percent of 2006 production at $6.75; sell 10 percent at $8.20. Sold 40 percent of 2007 production at $7.76 1/4 November.

Traders: Sell July $7.54 stop. 20 cent stop loss.

Cattle:

The cash trade caught fire the last two weeks and the futures are left trying to rally to catch up with the cash market. Bearish traders were caught off guard as they were bear spread the market and were forced to buy back short April positions.

Weekly charts have moved to new all-time highs with the recent rally and April is close to challenging the previous contract highs established in 2003. The strong cash trade indicates supplies of cattle are extremely tight and with the low placement levels of the cattle market this fall and winter, these cattle supplies will remain tight through the summer, right when the largest demand season will be demanding more cattle.

Obviously, the upside for cash and live cattle is wide open into the summer and no hedges are recommended at this time. Producers should consider placing hedges in fall and winter months as cattle placements will begin to increase this spring as cattle come off of wheat pastures and feedlots will want to take advantage of the high price structure. Pullbacks in prices should be viewed as buying opportunities until evidence is seen that prices have fully factored in the tight cattle supplies and the strong demand.

Recommendations:

Hedgers: Hedged 25 percent of marketings at $95 basis April.

Cash Marketers: Be willing to move cattle above $155.

Traders: Long April/short October at $1 premium April. Exit at $4 premium April.

Wheat:

Winter wheat is beginning to exit dormancy across the southern Unites States as temperatures are beginning to warm and ample soil moisture will green the winter wheat crop. As the crop begins to exit dormancy, the winter crop will transition from a follower of corn and soybeans to a full fledged weather market. The USDA will begin issuing weekly crop condition reports in April, these reports will have traders focusing on these reports for prices direction.

Spring wheat, traded on the Minneapolis Grain Exchange, could find buying interest into early April as the market will need to remain price competitive with the corn and soybean markets. Seasonal tendencies for wheat are now higher as 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 of 2007 production at $5.04 December KC or 20 percent at $5.01 December Minneapolis. Hedge 10 percent at $5.43 December KC or $5.50 December Minneapolis. Long July KC 480 calls on 20 percent of hedges.

Cash Marketers: Sold 40 percent of 2007 production at $5.04 December KC or 20 percent of 2007 production at $5.01 December Minneapolis. Sell 10 percent at $5.43 December KC or $5.50 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. However, disease problems is limiting the amount of feeder pigs that are available and this in turn should limit the number of market-ready hogs available for the last third and fourth quarters in 2007. Seasonal trends are higher for the hog market until May, which will allow producers to focus on hedging hogs at very profitable price levels.

Recommendations:

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

Cash Marketers: Don’t add extra weight.

Traders: Stand aside.

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