Tri-State Neighbor: South Dakota Farm Newspaper

It was a bearish March for corn as December corn lost 36.5 cents from the previous month’s close. In March, corn prices failed to rally to new highs and took out the February lows, clearly a bearish technical development. As this occurred after posting fresh 10-year highs in the month of February, a change of trend has developed.

In the prospective plantings report, the USDA forecast United States farmers would plant 90.45 million acres, an increase of 12.123 million acres. This is the largest seeded acres since 1944. This will likely be the largest seeded acres estimate of 2007 as in 10 of the last 11 years the final plantings number will come in under the March USDA estimate. Like the month of March, April will have commercial and seasonal traders buying weakness for a potential summer weather rally as the record-large demand base will have end users very nervous about weather and this year’s growing season.

United States producers will begin seeding corn acres by mid-April and weather will become very important to pricing by May. If the month of April is wet and hampers producers’ planting efforts, look for December corn to rally in an effort to entice producers to plant corn later, rather than switch acres to soybeans. The large speculative trading funds are still holding a net long position of over 268,000 contracts and with the technical trend on the daily trading charts turning lower, look for these funds to liquidate these long positions. Without a weather problem this summer, the downside price target for December corn is $2.30 to $2.75. Seasonal trends are lower through the month of April.

Recommendations:

Hedgers: Hedged 55 percent of 2006 production at $3.40; hedge 15 percent at $4.05 July. Hedged 30 percent of 2007 production at $3.85 December. Hedge 10 percent at $4.30 July 2008.

Cash Marketers: Sold 55 percent of 2006 production at $3.40; sell 15 percent at $4.05 July. Sold 30 percent of 2007 production at $3.85 December. Sell 10 percent at $4.30 July 2008.

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

Soybeans:

Following the lead of the corn market, November soybeans futures closed 19.25 cents lower in March compared to February. In the month of March, the soybean market had 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.

In the quarterly stocks and acreage report, the USDA estimated the 2007 soybean acres at 67.14 million, over 2 million less than the average trade guess and 8.382 million acres less than one year ago. This acreage forecast is the smallest since 1996 and will keep the market on edge during the growing season, especially if any real weather threat develops as the small seeded acreage forecast leaves little room for a yield in 2007. Quarterly stocks are estimated at 1.784 billion bushels.

If corn continues to push lower in April, look for soybeans to follow on fund selling pressure. Also, a planting season that is slowed by heavy rains, will encourage farmers to switch plantings of corn over to soybeans, therefore look for soybeans to maintain their premium to corn to entice farmers to switch acres and ensure adequate supplies of soybean stocks.

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: Long July at $7.65. Exit at $8.19.

Cattle:

After a two-week pullback in cash trade, the cash trade caught fire once again. Bearish traders and packers were caught off guard once again by the surge in the cash market. 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. The April cattle-on-feed report should once again show tight supplies of cattle with increased placements.

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:

It was a lower month for wheat prices in March as July KC wheat closed the month 56.5 cents lower than the previous month. April is the month that the United States winter wheat crop is now in the key yield development timeframe.

As in any key yield development timeframe, if April brings little moisture, prices will soar. If there is plenty of rain, prices will fall. Our winter crop is about 70 percent of our total United States production, and goes mainly to the export market. Improved quality because of ample rainfall means better export business after harvest ends. Near term forecasts are predicting rain for the Plains and crop ratings are near 25-year highs to start the month of April. Cool temperatures in the first half of April is threatening the winter wheat crop yields as a hard freeze has been recorded in much of the winter wheat areas.

Our spring wheat crop is currently being seeded and producers will finish in May. Spring wheat represents about one-third of our United States production, and mainly goes to United States millers for domestic use.

Smaller spring wheat acres are being seeded this year than previous years, leaving small room for error during the growing season. 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 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: Stand aside.

Hogs:

In the quarterly hog and pig report, the USDA estimated United States inventory of all hogs and pigs on March 1 was 61.1 million head.

Breeding inventory, estimated at 6.08 million head, was up 1 percent from last year. Market hog inventory, at 55 million head, was up 1 percent from last year.

The December 2006-February 2007 pig crop, at 26.1 million head, was up 2 percent from 2006. Sows farrowing during this period totaled 2.87 million head, up 1 percent from both 2006 and 2005. The sows farrowed during this quarter represented 47 percent of the breeding herd. The average pigs saved per litter was 9.08 for the December 2006-February 2007 period, compared to 9.03 last year.

Cutout values seasonally move higher into May/June, which will allow the packer to pay more for cash inventory. 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 second quarter marketings at $79 basis July.

Cash Marketers: Don’t add extra weight.

Traders: Long October at $66.50. Exit at $68.90.

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