Tri-State Neighbor: South Dakota Farm Newspaper

In the April supply/demand report, the USDA forecast a rise in United States ending stocks to 877 million bushels, up from 752 million bushels in the March report. The USDA left the export and industrial usage categories unchanged, while they decided to reduce feed usage by 125 million bushels, accounting for the increase in ending stocks. It is very likely that the USDA is still overestimating feed usage as they do not factor in DDG consumption, which could be as much as 700 million bushels of corn. This means that ending stocks is actually closer to 1.577 billion bushels instead of 877 million bushels.

United States producers are currently seeding the 2007 crop and are behind the average planting pace. Weather forecasts through May 10 indicate the crop will get planted at about an average pace, therefore the market is slowly removing weather premium from prices. Funds have been selling long positions as the technical trend of the market has turned lower while commercial accounts have been scale-down buyers. This scale-down buying will continue through April and into May as end users want to be buyers ahead of the growing season in case weather problems develop during the yield development timeframe.

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 and into mid-May.

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. Long December $4 puts on 50 percent of production. 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. Exit at 10 cents.

Soybeans:

In the April supply/demand report, the USDA forecast a rise in United States ending stocks to 615 million bushels, up from 595 million bushels in the March report. The USDA lowered the export by 20 million bushels, a surprising development considering the United States has already reached 95 percent of the USDA forecast of 1.08 billion bushels.

The United States export pace has begun to slow as the South American soybean harvest is now approximately 75 percent completed and South American soybean supplies are competing with United States supplies for the world’s export business. November soybeans have broken the critical support of $7.761/2, which has turned the technical trend of the market lower. With the technical trend lower of corn and soybeans, look for soybeans to follow corn lower on fund selling pressure. One of the lone bright spots for the soy-complex is the NOPA crush estimate of 148 million bushels, a record crush number for the month of March.

Recommendations:

Hedgers: Hedged 60 percent of 2006 production at $6.75; sell 10 percent at $8.20 July. Hedged 40 percent of 2007 production at $7.761/4 November. Long $8 November puts on 50 percent of production. Hedge 10 percent at $8.25 July 2008.

Cash Marketers: Sold 60 percent of 2006 production at $6.75; sell 10 percent at $8.20 July. Sold 40 percent of 2007 production at $7.761/4 November. Sell 10 percent at $8.25 July 2008.

Traders: Long July at $7.65. Sell at $7.65.

Cattle:

The April cattle on-feed report is viewed as slightly friendly for the front end cattle, but negative for the late third and fourth quarter of 2007. The on-feed estimate is forecast at 99 percent of last year’s cattle inventory with inventory estimated at 11.6 million head. While this is below last year, it is the second largest inventory since 1996. Placements in feedlots totaled 1.97 million head, 7 percent more than 2006 and 12 percent more than 2005.

Feedlots were encouraged to place more cattle on-feed due to declining feed costs and profitable marketing opportunities in the fourth quarter of 2007. Marketings of fed cattle in March totaled 1.85 million head, down 6 percent from both 2006 and 2005. Packers are pulling inventory from captive supplies to meet slaughter needs, however they will need to bid up for cattle in the first two weeks of May. Demand will also improve as weather improves this spring and grilling season begins.

Producers should consider placing hedges in fall and winter months as the increased placements will eventually weigh on the October and December contracts.

Recommendations:

Hedgers: Hedged 25 percent of marketings at $95 basis April. Buy October 98 puts, sell 108 calls and sell 88 puts on 100 percent of marketings.

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

Traders: Long April/short October at $1 premium April. Exit at market. Buy August and sell December at $4.50 premium December.

Wheat:

Wheat futures have rallied sharply so far in the month of April due to frost damage that occurred over the Easter weekend. Why is this significant to prices? Wheat has broken dormancy and will grow into our harvest which starts in June. April and May are the months where winter wheat yields will be made or lost. As in any key yield development timeframe, anything that will reduce yield potential will send prices soaring.

Our winter crop is about 70 percent of our total United States production, and goes mainly to the export market. With reduced yield prospects for the United States winter wheat crop, the world will be more dependent on the European Union, Argentine and Australian wheat crop. Dryness concerns are once again threatening the yield potential of the Australian wheat crop.

World wheat ending stocks are estimated at 121.21 metric tons, the tightest since 1981. With the tight world ending stocks, price volatility should remain high. Seasonals are higher for wheat during the entire growing season, which effectively ends about May 10. This is when seasonal price trends turn lower as the market prepares for the impending winter wheat harvest. Our spring wheat crop is currently being seeded and producers will finish in May. Spring wheat represents about one-third of 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 as a yield threatening event will send prices soaring.

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: Stand aside.

Hogs:

Seasonal trends are higher for the hog market until May before they turn sharply lower. The reason for this is simple; farmers’ attentions turn to planting corn and soybeans rather than marketing hogs in April and May. As planting season ends in May, hog marketings usually increase and price patterns turn more bearish.

Cash trade is pulling the lean hog index higher and packers are bidding the cash higher to secure inventory. Look for this cash trade to continue to move higher into mid-May before the season trends take over and pull values lower. Additional hedges are recommended on this rally for the fourth quarter.

Recommendations:

Hedgers: Hedged 25 percent second quarter marketings at $79 basis July. Hedge 25 percent of marketings at $78.25 August, $70.35 October and $69 December.

Cash Marketers: Don’t add extra weight.

Traders: Long October at $66.50. Exited at $68.90 for $960 profit. Sell October at $70.35.

Comments »

Comment on this story

Comments will be approved within 48 hours