The Prairie Star: Montana Ag Newspaper

Corn - The November USDA supply/demand report was a very supportive long term report as the USDA once again lowered the 2006 production forecast as well as tightened the ending stocks forecast.

The USDA estimated the 2006 corn crop at 10.745 billion bushels, down 160 million bushels from last month's report. Carryover was also lowered from 996 mb from the October report to 935 mb in this report. Total usage remains record strong at 11.790 billion bushels, meaning the U.S. will use over 1 billion bushel more than what it produced in 2006. This is amazing considering the crop in 2006 was the third largest in history.

With the report out of the way, price direction for the rest of the month will come from technical indications as fundamental news will be limited.

Weekly export sales will be of more importance as the trade will want to measure if the high price levels are curbing demand. Basis levels should remain very tight and likely will narrow further as producers have essentially completed the harvest and safely tucked the crop away in storage.

With the crop locked in long term storage facilities and producers having enough cash to meet cash flow needs, very little additional cash sales should occur until after the first of the year for tax reasons. Traders will likely begin to take profits on long positions, banking in hefty profits prior to the end of the month and the end of the year. Prices will work higher into the spring as the market must ensure enough seeded acres to meet demand but a large correction in prices would be healthy and viewed as a buying opportunity.

Recommendations: Hedgers: Hedged 45 percent of 2006 production at $2.77. Long July 360 puts on 25 percent of production. Hedged 10 percent 2007 production at $3.25 December 2007. Hedge 10 percent of 2007 production at $3.65 December 2007.

Cash Marketers: Sold 45 percent of 2006 production at $2.81. Sold of 10 percent 2007 production at $3.25 December 2007. Sell 10 percent of 2007 production at $3.65 December 2007.

Traders: Sell March at $3.56 stop. 12 cent stop loss.

Soybeans -The November USDA supply/demand report was considered supportive despite the fact the USDA once again increased the 2006 production forecast as from last month. The USDA estimated the 2006 soybean crop at 3.204 billion bushels, up from 3.189 billion bushels as reported in last month's report.

Carryover was also increased from 555 mb from the October report to 565 mb in this report. Total usage remains record strong at 3.091 billion bushels, meaning the U.S. will use only 100 million bushels less than what it produced in 2006. This is amazing considering the crop in 2006 was the largest crop in history.

With the report out of the way, price direction for the rest of the month will come from technical indications as fundamental news will be limited. Weekly export sales will be of more importance as the trade will want to measure if the high price levels are curbing demand.

Currently, cumulative weekly export sales are approximately 26 percent above last year's total. Basis levels should remain very tight and likely will narrow further as producers have essentially completed the harvest and safely tucked the crop away in storage.

With the crop locked in long term storage facilities and producers having enough cash to meet cash flow needs, very little additional cash sales should occur until after the first of the year for tax reasons.

Traders will likely begin to take profits on long positions, banking in hefty profits prior to the end of the month and the end of the year. Prices will work higher into the spring as the market must ensure enough seeded acres to meet demand but a large correction in prices would be healthy and viewed as a buying opportunity.

Recommendations: Hedgers: Hedged 50 percent of 2006 production at $6.34 July. Long July 660 puts on 25 percent of production. Hedged 20 percent of 2007 production at $7.00 November.

Cash Marketers: Sold 50 percent of 2006 production at $6.34 July. Sold 20 percent of 2007 production at $7 November.

Traders: Sell March at $6.65 stop. 16 cent stop loss.

Wheat-In the November supply/demand report, the USDA reported world wheat stocks are at 25 year lows and the stocks to use ratio is the smallest since 1996. As recently as September 2005, the USDA forecasted world wheat stocks at 146.07 mmts and in the November supply/demand report, the USDA predicted stocks had dwindled to 118.83 mmts.

Strong demand for wheat combined with crop problems in major wheat producing countries of the United States, the EU 25 and most recently Australia have reduced global wheat supplies. Demand for wheat has slowed as prices have rallied to 10 year highs, however wheat is grown for human consumption and countries will continue to buy wheat to feed growing populations.

This leaves set backs in the market well supported by commercial exporters and funds will continue to buy the market as long as the trend remains higher. Winter wheat seeding is essentially completed in the Plains and good to excellent ratings are nearly identical to last year. The crop will begin to enter into dormancy around the first of December. Fundamentals are longer term bullish for wheat but until technical strength returns for wheat, the large trading funds are likely to avoid the long side of the market.

Recommendations: Hedgers: Hedged 100 percent 2006 production at $5.22 December Kansas City or $4.95 December Minneapolis. Hedged 40 percent 2007 production at $5.04 December Kansas City or 20 percent at $5.01 December Minneapolis. Buy July 450 calls on 20 percent of hedges on a setback in prices.

Cash Marketers: Sold 100 percent 2006 production at $4.70 Kansas City or Minneapolis wheat at $4.70. Sold 40 percent 2007 production at $5.04 December Kansas City or 20 percent of 2007 production at $5.01 December Minneapolis.

Traders: Sold March Chicago at $4.98. 15 cent stop. Take profits at $4.76.

Live cattle- With the high input costs of escalating corn prices and high priced feeder cattle, feedlots and cattle producers trying to increase their marketing efforts. Rather than feed cattle out to a heavier weight and incur more expense with the high corn prices, producers are selling cattle at lighter weights. This will hurt nearby markets and cattle prices, as reflected by the spread from December to February nearing a contract low of around $3. This spread is likely to continue to widen with corn prices remaining strong.

Longer term, lighter weight fat cattle will have a bullish effect on prices as this means less beef tonnage will be available, which should be positive for April and June live cattle. Feedlots are already decreasing their interest in placing cattle into feedlots due to the high corn prices.

Feeder cattle prices have fallen over $16 per hundred weight since corn bottomed in early September. During the spring timeframe, feeder cattle should be plentiful and lower prices and increased corn acres will present an excellent marketing opportunity.

Recommendations: Hedgers: Hedged 50 percent of marketings for 4th quarter marketings at December at $91. Lift hedges at $86.50. Hedged 50 percent of 1st quarter marketings at February marketings at $92.50.

Cash Marketers: Be willing to move cattle above $146.

Traders: Buy June at $85.65. $2 stop loss.

Lean hogs-Heavy commercial selling has highlighted the hog trade over the last two weeks. Commercials have been aggressive sellers, pushing their net short position to over 9,000 contracts net short. This is the largest net short position over the last 12 months and the open interest levels have risen sharply on the commercial selling to a new all time record high.

Hog prices have been volatile and choppy with large swings occurring almost daily. The cash market has been under pressure from readily available supplies of hogs. Demand has remained stellar, further providing support for prices. Summer month hogs have the best opportunity for a longer term rally as if corn prices rally into the spring and summer, hog values will rally as well.

Recommendations: Hedgers: Hedged 100 percent of December marketings at $61 and 50 percent of February marketings at $63. Cover February hedges at $61.

Cash Marketers: Stay current with marketing inventory.

Traders: Sold February at $66.50. $2 stop loss. Take profits at $62.50.

Copyright:Copyright 2006

Midwest Market Solutions, Inc