Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
February 12, 2002
The livestock markets are marking time, waiting to see what will develop in a largely bullish scenario. The lighter Choice boxed beef values were above $120 at the close on Friday, up over $4 from the prior Friday. Cash prices were as high as $72.50, with weighted average prices above $71 on loads with a high percentage of the cattle grading Choice. Cash hog prices are improving as we see seasonal decreases in daily slaughter levels during February.
The active April lean hog futures have reached new highs in the past week. Supplies for that period will come from the fall pig crop, so numbers are known with some sampling error adding some fuzziness to the price discovery process. Like last week, I would say forward price hogs on a scale-up basis as more profits are offered or sell futures on a close below the trend line hooking the October and December lows on the April contract. Monday's break shows an increasing interest in selling this market. Take a hard look at the prices being offered for late in 2002 when sell signals come. You might want to price your late 2002 hogs at the same time, especially if you operate as a selective hedger and will be willing to buy them at lower prices later, then replace the shorter hedges late in the year, etc.
Deliveries against the February live cattle contract are bringing slight pressure in cattle. The April is now trading up to $76.50, with no signs of faltering. That contract will hit selling in the $77.50 to $78 range where we see a chart gap and mid-summer congestion. There is a steep but useful trend line on the April live cattle as well. In feeder cattle, losses in the feedlots across recent months are constraining feeder cattle prices relative to the fed cattle market. Feeder cattle will work higher, but the March will hit major selling resistance across the January high just below $86. That should now be seen as a chance to place short hedges or take profits on long hedges in the March feeder cattle.
Corn is drifting lower, with the March around $2.05. Long hedges should be in place if you are a user of corn, and these price levels are attractive if you still need some protection out through the coming year(s). We are looking at increased acreage in corn and the possibility of a 10.0 billion-bushel corn crop. March soybean meal prices are below $150. On a dip toward $140, livestock, poultry, and dairy programs should buy meal futures as they buy corn, and extend protection out through the year.
March soybean futures are trying to hold above $4.25, and the new-crop November is being bought at $4.40, the top of the early-January chart gap. Look for this market to drift lower, giving users a chance to set long hedges around $4.30 on the November. As a producer, I would not price on these lows but would buy back any short hedges in the November just above $4.30.
March Chicago wheat did not do what I expected and is slipping toward the lows on the chart. To hedge wheat, we will now have to get a bounce off the December low near $2.77 or the October low below $2.75. We will take action in the July, of course, but March is the actively traded contract and I watch it for signals. It would be nice to see at least a correction of this last break back up toward $3, but we may need to hear about weather problems in March to get that rally.
