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August soybean prices to lead the way
The July bean contract went off the board at noon today. The last trade was down 27 cents at 1574 1/4. July meal remained strong into the close with the last trade at 10 dollars higher $536 a ton. November beans sold off for most of the session finishing 33 1/2 lower at 1257 1/4. This close has taken out the long term up trend we have been holding on the weekly chart. Weather models have brought in rain on the 6-10 day forecast but the questions remains, will these maps still have rain on Sunday? Beans are still up 29 cents for the week even after this 33 1/2 cent sell off today. The weather models are important now but they will be even more important in the coming weeks. Bean GTE ratings are at 67% right now and there is talk that we could see another 1% increase next week. Beans are made in August and as we get into the next few weeks these weather maps will stretch into the first part of August. Corn has been extremely volatile but beans may increase volatility if we see hot and dry next month. The charts closed weak and could be setting up for more of a decline next week but August should have the biggest impact on price fluctuation.
6-11-2013 Bought 1 unit of November $11.00 bean puts for 10 cents, Risk value of option will hold until anticipated “fall break”.
Lean Hog Commentary
For the past few weeks we have discussed this market from a clear bearish perspective. The June Hogs and Pigs report indicated that producers were already starting expansion in the March – May quarter (lightly). This came despite the fact producers were still operating in the red (three quarters in a row) and also concerns over planting weather. The lure of sharp declines in feed prices for the 2014 period is just too hard to ignore. Yesterday’s update from USDA’s supply/demand showed that they share our concern. By Q2 of next year USDA forecasts a 3.4% increase over this year’s Q2. We must take a balanced approach to markets though. Almost every conversation with a producer includes a PED discussion. By October or November we will see the first “holes” in the slaughter schedule. The effects of this virus are devastating for the first 21 days of life in a litter. However, the number of farms infected has not been enough to raise serious alarms. By mid-June the total count was 218 farms affected. At the end of June the number comes to 331. That comes to something like 0.3% to 0.4% of all hog farms. If you say their production as a group is cut by 50%, you are not talking about a measurable effect on future kills or prices. As risk managers, we can say with clarity that the #1 mistake seen in farm marketing of grains or livestock is decision making based on hopes, growing conditions in your geographic area, or rumors heard from a friend/farm radio/the internet. Our job is to provide you with clear information based on facts or at least well-researched opinions. So far, PED is not an issue for hog prices. We will certainly agree with two points to consider 1) many farms likely have it but have not reported it yet 2) this is a virus and will likely continue to spread over the next two to three months. For now, let’s market hogs based on this clear fact…the profit incentive for 2014 that 99.7% of all producers have right now far far far outweighs the problems that 0.3% of producers have. Ugly, but true. For a shorter term focus, wholesale pork is in a tailspin. Cash hogs may likely see some pressure into next week. We still suggest that the year’s highs were made in June for both pork and cash hogs. We are 100% sold for all hogs through August 2014 as of the July 1 night open. However, typically in the later half of July we have a minor rebound that represents the last-chance to sell before the fall/winter price drop happens…Rich Nelson
(6/20) Bought October cattle 123.80/sold October hogs 85.35 at net 38.45, move risk to 40.10, objective 45.05. Closed 41.87.
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