Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
September 18, 2001
Boxed beef cutout values for the Choice carcasses gained about $2 last week, but lost part of that on Monday in the face of all the uncertainty about the economy and other outside factors. Cash cattle are still reaching $70 for the pens with 80 percent Choice and I doubt if the cash market will change much this week. The October live cattle futures dropped through the support at the early May low near $72. This suggests that the consensus is for declines in the futures to get in line with the cash market rather than for any rally in the cash market. Hold short hedges if they were maintained through the past several days of uncertainty. If you lifted them near $72, use any rally back up under the old support at $72 to replace them if you cannot afford an unlikely but possible break down toward the mid-$60s.
The October feeder cattle futures did not rally toward the recent highs on the chart that is shown again this week. But that is not surprising with all the uncertainty, and I think those rallies are still possible. Be even more aggressive on a rally toward the early September high around $91.30, and cover yearling cattle sales in futures out through January if the market rallies toward the high just above $92 on the October contract. This is the time of the year that I usually want to start watching for chances for long hedges on the spring feeder cattle futures, so keep that in the back of your mind if we do see a further dip to still lower prices in this complex. Note: I am repeating last week's chart. We are having some technical problems with the charts this week.
Cash hogs are averaging above $61 on a lean hog basis, in the mid to high $40s on a live basis. With cheap corn, this is still profitable and these prices are in line with October futures that are trading round $61. A trend line hooking the late May and late August lows provides support under the market, and a resistance plane across the contract high in early August near $62.40 provides major selling pressure on the topside. On this October and on the later futures contracts, this market will have to come out of the triangle in the next several weeks, and one approach is to step back and watch which way the market will move. If it comes out by a close below the trend line, you need short hedges on all hogs out through the end of the year. If it does make new highs, then let it run to the upside and place short hedges at still higher prices. I do not think the $62.40 resistance will be taken out. I would expect to see strong selling on a rally to that level and would, therefore, encourage looking at short hedges on such a rally while the prices being offered still provide good profits.
Wheat and soybeans held some small gains on Monday, and corn closed lower. Report numbers suggest a corn crop well above 9 billion, and there is not much export activity. The lower dollar is helping support wheat and soybeans where exports, relative to total sales, are relatively more important than is the case in corn. In wheat, I was pleased to see the December Chicago contract hold at the late June low just below $2.70. Monday's action actually gave us a reversal day to the upside, so we should see better prices ahead to sell cash wheat or take profits on long positions in futures or call options. This may be a major double bottom in this market so be patient. I would want to see the prices back above $2.90 or better to resume selling or cashing out long futures positions.
November soybeans appear to be building some support in the $4.65 to $4.70 area. I would consider buying back short hedges in this area, and users might want to look at placing or replacing long hedges. There is talk of weak yields as the harvest gathers momentum, but that is not unexpected and may not hold as the harvest moves ahead. But it is the sort of talk that can bring a nice rally in soybeans and continued weakness in the U. S. dollar would boost chances for a rally.
There is not much positive in corn where the harvest is starting to add to pressure. Monday's close on the December contract was weak and indicates a test of the support at $2.20 across the early August low is imminent. If that gives way, we have a July low at $2.15 and then the late June contract lows just above $2. I do not expect to see a retest of the $2 area, and expect to see support build in the $2.15 area. If that happens, we will have a reason to lift short hedges and/or place or replace long hedges if you are a corn user. Keep in mind that the harvest pressure can set up good opportunities to place long hedges on corn out through 2002.
