Corn closed the week $.36 1/2 higher. Last week, private exporters did not announce any private sales. In the weekly export sales report, corn sales were 28.1 million bushels versus 21.2 mb needed weekly to hit the USDA forecast.
As discussed in previous issues, the market has bounced off technical support and funds have bought short positions back. This is due to fund managers willing to take profits to pay end-of-the-month, end-of-the-quarter and end-of-the-year bonuses.
Dry conditions in Southern Brazil and Argentina are hurting the corn crop and adversely affecting yields. This should put a price floor underneath corn prices.
Strategy and outlook: Producers should have 30 percent of new crop production sold. Producers lifted 660 December puts on 50 percent of the crop and will try to rehedge at a higher level.
Soybeans closed the week $.33 higher from last week. Last week, private exporters reported no private sales.
In the weekly export sales report, soybean sales were 24 mb versus 12.1 mb needed to reach the USDA forecast.
Year-to-date sales are 33 percent behind a year ago. Similar to what is developing in corn, soybeans are rallying on end-of-the-month, quarter and year buying. Fundamentally, dry weather in South America is providing support as some areas of soybeans have not been seeded in Argentina due to the dry conditions. It is more likely than not the largest yield estimates from Argentina have already been factored into the market.
Strategy and outlook: Producers should have 30 percent of the 2011 crop production sold and 50 percent covered with November 1400 puts.
When soybeans fell to major support, producers lifted the puts and will try to rehedge at a higher level. With the bullish commercial position in the soy complex, it makes sense to wait for a rally to sell any more production.
For the week, Chicago wheat closed $.38 1/4 higher; Kansas City wheat $.35 1/2 higher and Minneapolis wheat $.32 1/4 higher. Last week, private exporters announced a sale of 120,000 metric tons of gard red wheat to Nigeria.
In the weekly export sales report, wheat sales were 13.3 mb versus 9.4 mb needed to reach the USDA forecast.
Wheat export sales have remained seasonally slow and look to remain weak through the winter months as the U.S. is not competitive with the world in terms of export price.
Winter wheat has been blessed with a blanket of snow just prior to the crop entering dormancy, indicating the potential for a better-than-average winter wheat crop.
The best chance for a rally in the wheat market remains fund short-covering as the fundamentals are no bullish.
Strategy and outlook: Producers are now 50 percent sold against the 2011 crop. We would advise another 20 percent sale for the 2011 crop at $7.50 against the Kansas City contract against the weekly resistance and buy at the money puts.
LIVE CATTLE ANALYSIS
Live cattle ended the week $5.82 higher while feeder cattle ended $4.57 higher. Last week, cash cattle trade was reported in the North at mostly $202, $8 higher compared to last week while trade in the South was $122; $4 higher compared with the previous week.
The market finally showed signs of life last week as it reacted positively sharply higher cash trade. Cutout values have stabilized and rallied and this gives feedlots confidence for higher cash trade next week.
Strategy and outlook: Producers are hedged 50 percent of all production month. December at $122.05; February at $124.65; April at $128.62; June at $126.65 and August at $126.45. Feed costs should be covered in corn futures/options or cash product through July, 2012.
LEAN HOGS ANALYSIS
Lean hogs closed the week $2.70 higher. The average Iowa-Minnesota hog weight for last week was estimated at 275 pounds versus 274.5 pounds the previous week and 275 pounds last year. Hogs are desperately holding major weekly support, however a violation of this support should result in a major selloff as funds are holding a large, net long position.
Look for hog futures to bounce off technical support and test the top end of the trading range. In the quarterly hog and pig report, the USDA reported U.S. inventory of all hogs and pigs on Dec. 1, was 65.9 million head. This was up 2 percent from Dec. 1, but down 1 percent from Sept. 1. Breeding inventory, at 5.8 million head, was up slightly from last year, but down slightly from the previous quarter.
Market hog inventory, at 60.1 million head, was up 2 percent from last year, but down 1 percent from last quarter.
Strategy and outlook: Producers have extended hedge coverage to 50 percent in all months of production. December is hedged at $89.50; February is hedged at $91.90; April is hedged at $94.55; June is hedged at $100.60; July is hedged at $98.92 and August is hedged at $97.00.
All feed costs should be locked in as well.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.
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