Market Snapshot, Noon CT -- (Advice) -- March 19, 2014

March 19, 2014 07:02 AM

Build price floor with lean hog put options… We have stayed out of coverage in lean hog futures to allow the parabolic run in the market to play out as much as possible without racking up unnecessary costs of continuously rolling put option coverage higher, but we can't wait any longer to build a price floor. Hog producers are advised to cover 50% of expected second-quarter hog marketings and 50% of expected third-quarter hog marketings by buying $126.00 June lean hog put options. Don't wait on this coverage, buy the puts "at the market."

Corn futures continue to post gains of 1 to 3 cents at midday.

  • Spillover from soybeans and wheat continues to lift the corn market.
  • In addition, traders remain optimistic unrest in Ukraine will eventually translate to increased U.S. export business. In addition, a depreciating currency and tighter credit lines are expected to reduce the country's 2014 acreage.
  • Traders are also hesitant to add long positions ahead of Thursday's Weekly Export Sales Report, as recent data has signaled strong demand.
  • Lanworth today pegged world 2013-14 corn production at 967 MMT, which is in line with USDA's latest projection.
  • The market is also showing a bit of concern about ongoing cold weather and more snow for the Corn Belt. Soils have had little chance to start thawing after a brutal winter.

Soybean futures have pared early gains to trade 7 to 12 cents higher in old-crop contracts, while new-crop is 4 to 6 cents higher.

  • Early gains in the soybean market have given way to some mild profit-taking. But the improved chart posture of the market this week keeps bulls in control.
  • Nearby contracts are leading gains thanks to some technical buying following their recent moves through the psychologically significant $14.00 level.
  • Old-crop futures are also benefiting from concerns about tight carryover supplies. NOPA crush data this week signaled strong domestic demand and China has yet to make major U.S. bean order cancellations. In fact, the nation raised its import forecast for March yesterday.
  • Meanwhile, South America continues to struggle to ship a record large bean crop in a timely fashion. Lower production estimates out of Brazil this week are also mildly support.
  • Today Lanworth pegged 2013-14 world soybean production at 288 MMT, which is 2 MMT above USDA's latest estimate.

Wheat futures have extended early gains to trade 20-plus cents higher across all three flavors. HRW wheat futures are leading to the upside.

  • Dust storms on the Southern Plains are keeping dry soils and winter wheat crop deterioration in focus for wheat traders today.
  • In addition, the market continues to benefit from ideas Black Sea tensions will eventually translate to increased U.S. wheat exports.
  • Plus, traders point to Egypt's U.S. wheat buy yesterday as a sign U.S. wheat prices are still competitive on the global market.
  • Traders are hopeful this will translate to an uptick in tomorrow's weekly export sales data.
  • Lanworth today said the 2013-14 world wheat crop would total 710 MMT, which is 3 MMT below USDA's crop peg.

Live cattle futures have improved to choppy trade. Feeder cattle futures are also mixed with an upside bias.

  • Traders continue to engage in some mild position evening as they await the start of cash cattle trade. Last week, trade ranged from $148 to $152, with action in Texas and Kansas taking place near the lower end of that range.
  • The front month is benefiting from some efforts to narrow the discount it holds to these cash prices, since fundamentals point to at least steady trade.
  • Choice boxed beef slipped 18 cents this morning, while Select values firmed 72 cents. But more notable is the fact that movement improved to 124 loads this morning. This was above overall total the past four days.
  • Showlist estimates are tighter across all locations this week and beef prices remain near record levels. Plus, packers have seen profit margins strengthen this week.
  • Traders are also beginning to look ahead to Friday's Cattle on Feed Report. Pre-report expectations are for On Feed to come in at 98.9%, Placements of 109.7% and Marketings at 97.0% of year-ago levels.

April lean hogs faced pressure this morning, but it has since improved to trade around $1.00 higher. May through July futures are slightly to sharply lower while later months are posting similar gains.

  • Action in the lean hog market is widely varied today, with May through July futures pressured by bull spread unwinding. Technically, this pullback is overdue.
  • Early losses in the April contract were viewed as a value buying opportunity. The contract is testing yesterday's contract high.
  • Packers are again paying steady to higher prices for market ready hogs as strong profit margins give them incentive to process hogs but supplies are tight.
  • Spring and summer month contracts have been propelled by concerns the spread of the porcine epidemic diarrhea virus (PEDV) will cause even more troubles at that time of the year when supplies are seasonally at their tightest.
  • However, the market learned this week that a North Carolina plant has already reduced its hours of operation due to limited supplies.
  • Traders are also responding positively to a a notable surge in pork movement today, as 264.25 loads changed hands on a $1.02 pullback in the pork cutout value. This was near or above total movement the past week.
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