Market Snapshot, Noon CT (VIP) -- Advice -- November 1, 2012

November 1, 2012 06:59 AM
 

 

ADVICE: LIVESTOCK PRODUCERS: COVER A PORTION OF 4TH, 1ST QTR. SOYBEAN MEAL NEEDS...

Soybean meal futures are actively strengthening again amid strong demand and supply concerns. As a result, there's more near-term upside price risk. Livestock producers are advised to cover 50% of remaining 4th-qtr. protein needs in long December soybean meal futures and to cover 25% of expected 1st-qtr. needs in long March meal futures.

Be prepared to be flexible with this coverage. If South American weather turns favorable and puts pressure on the market, we'll lift the hedge coverage.

Corn futures have extended gains slightly to trade roughly 3 to 7 cents higher.

  • The fact that corn has respected key technical support levels, such as the 100- and 50-day moving averages, has encouraged some technical buying among funds.
  • The market also continues to benefit from improved risk appetite across the investment sector and spillover support from soybeans.
  • While corn supplies are tight and delayed planting in South America could add to supply concerns, demand has been very limited.
  • Gulf basis levels were steady to lower this morning and at midday.
  • A recent rise in South American corn prices has encouraged some to hope demand for U.S. corn will improve, though the market has as yet seen no signs of this.

 

Soybean futures continue to enjoy gains ranging from 13 to 16 cents in most contracts.

  • Soybeans' rally around demand news this week has brought some fund buying back to the market. Strong gains in the stock market and crude oil futures is also supportive.
  • Today's rally can largely be attributed to talk China is again buying soybeans. Firmer Gulf basis levels in the Gulf for November delivery this morning and at midday are supportive of this rumor.
  • The market is also benefiting from delayed soybean planting in Brazil. While this likely signals more acres will be switched to soybeans, it also means Brazilian bean exports will not ease the tight supply situation earlier than normal.

 

Wheat futures have firmed to trade 6 to 8 cents higher in Chicago, 5 to 6 cents higher in Kansas City and 4 to 5 cents higher in Minneapolis.

  • Wheat has seen choppy trade today, but bulls currently have the near-term advantage thanks to spillover support from corn and soybeans and supply concerns.
  • Yesterday's crop condition and progress report from USDA showed that the winter wheat crop is in worse shape than year-ago. Also, emergence continues to lag the five-year average despite the fact that planting is ahead of average.
  • Persistent drought on the Plains is the culprit for this poor start.
  • Also, news SovEcon cut its 2012 Russian wheat crop estimate by 500,000 MT to 37.5 MMT reminds the market of the tightening global wheat stocks situation.
  • Dwindling supplies in the Black Sea region and low-quality harvest results from Australia are eventually expected to boost demand for U.S. wheat. There is much uncertainty about the timeline for this, however.

 

Live cattle futures softened just ahead of midday to favor the downside in mixed trade. Feeder cattle futures also softened to trade moderately to sharply lower.

  • Earlier today, the live cattle market enjoyed light short-covering after the Conference Board Consumer Confidence Index hit a yearly high, sparking hopes for strong beef demand.
  • But the release of boxed beef market data this morning that showed Choice and Select boxed beef values slid 21 and 12 cents, respectively, encouraged profit-taking. Movement was solid at 101 loads, however.
  • This adds to concerns that deeply negative packer profit margins and steep declines in the boxed beef market yesterday could result in lower cash cattle trade in northern locations. Trade in the Southern Plains is thought to be complete.
  • Feeder cattle futures extended losses as corn futures built on early gains.

 

Lean hog futures are enjoying slight to moderate gains with nearbys leading to the upside.

  • December lean hogs are leading gains thanks to the steep discount it maintains to the cash hog index.
  • Deferred months are enjoying followthrough buying after a strong performance from the pork market yesterday. The pork cutout value rose 99 cents and movement impressed at 108.75 loads. Movement looks to be impressive again today as 37.75 loads changed hands this morning.
  • These gains boosted packer profit margins, though they are keeping cash hog bids mostly steady today as they are having no trouble securing supplies.
  • Strong gains in the stock market and crude oil futures point to a hearty risk appetite among investors today, which adds to the bullish tone.
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