Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
October 9, 2002
The livestock and meats complex got a little relief from the recent Hogs and Pigs report. The numbers were positive to prices in terms of both the breeding herd and the number of hogs we have headed to market. The supply level is still burdensome, but it is less likely now that we will see a near-record price disaster later this year. Cash prices for lean hogs have jumped to a weighted average of $42-$43, depending on where you look. But on the boxed beef side, we see the prices going in the wrong direction again with Tuesday's late prices fully $4 per cwt. on the light Choice types below week-earlier levels. That is going to make it difficult for the $66-$67 that feedlots are wanting this week, but we may see prices in the $65-$66 area. The December lean hog contract that I am showing again this week will be important in this complex. I had suggested in last week's report that resistance around the $41 level and a bit higher where this market has failed twice since June is going to constrain upside prices in both the pork and in the cattle complexes. I would continue to monitor this December lean hog contract very carefully and, as a producer, would be willing to sell rallies to the $41 level or slightly better.
In the cattle complex, the Tuesday close was very strong and suggests we might have some pricing opportunities back up toward the mid-September highs, which were around $72.60-$72.70 on the December contract. That reflects, I think, the relief that this entire complex feels in response to the recent Hogs and Pigs report, but I would be an aggressive seller on the cattle if we do see a rally above the $72 level on that December contract. It is going to be very difficult to see $72 cattle or better and hogs in the $42-$43 range on a lean basis and down toward $30 on a live hog basis. In the feeder cattle, we are seeing largely a parallel of what is happening in the live cattle contracts since corn prices are not moving in a significant fashion at this point in time. Tuesday's close was very strong on the November feeder cattle as it rallied from the recent lows at $79. The mid-September high on this contract is at $82, and again, I would be an aggressive seller on fourth quarter feeder cattle sales on a rally back up toward $82. I continue to think that this entire cattle complex is going to be constrained on what it can accomplish in terms of upside prices because of the situation we are going to see in the pork complex. What is likely to happen is that much of the featuring at retail that stimulates movement into consumption is likely to switch to pork and away from beef, and that is going to be a blow to the beef complex that will constrain what we are able to do to the upside. Keep in mind that after climbing up to the $114-$115 area for the light Choice boxed beef cutout values, they have turned significantly lower across the last week, and that certainly influences prices that the packers will be willing to pay.
In the grain and oilseed complex, we are seeing private estimates come out before the October 11 U. S. Department of Agriculture reports that are calling for some small increases relative to September in both the estimates of the corn and soybean crops. This should not be surprising given the anecdotal evidence that we have been seeing across recent weeks that yields in corn in particular are somewhat higher than might have been expected. Still, the situation is uncertain, and we have the December corn futures that had plummeted from the $2.96 level all the way down to $2.50 trying to stage some sort of rally from that level. I would expect to see this market make a correction back up to $2.70, possibly a little better, in the December, and I think it will be sold there and such a rally will be an opportunity to replace short hedges if you have lifted them on the recent price dip and also to think about taking profits on long hedges. The chart gap around $2.80 on the December corn contract when you look at prices for the daytime session only is still there for many observers in this market, and I think it is unlikely that we will see that gap filled unless we do get a surprisingly bullish crop production report.
The break in the November soybeans carried from the $5.91 level all the way down to about $5.32 since those mid-September highs, and the pattern looks very similar to what we see in corn. I think this market will have a harder time rallying than will the corn. If we shift out to the January contract as the now actively traded contract in soybeans, the pattern is very similar to corn with the mid-September high around $5.94 and recent dips going down to about the $5.36 level. There is a chart gap there on the daytime trading activity in the January soybeans just about $5.60, and I think this market will be sold fairly aggressively on a rally back to that level. In corn and in soybeans, we can construct fairly obvious trend lines to the upside on these charts with that January involving hooking the late July and the early October lows. If you are holding soybeans or are planning to hold soybeans or corn in storage to get away from harvest-period pressure, you need to watch this uptrend line very carefully and be prepared to sell a rally back toward the highs around $5.94 on the January soybean contract or sell on a close below the trend line, whichever comes first.
In wheat, the July Chicago wheat had dipped from the $3.80 level which it reached in early September all the way back down to $3.35 and is trying to stage at least a modest rally. I think we can hook trend lines in this complex now, and if you have done nothing on this chart, I would go back to the early June lows and the dip down toward the $3.34 for the last week and watch that trend line if you still have a need to think about price protection in this new-crop wheat. I hope most everyone is 50 percent-60 percent forward priced at higher prices, but if that is not done, then we need to watch for rallies up toward those early September highs and watch for a close below these uptrend lines. I see the same pattern on the July Kansas City wheat. You can hook a trend line from the late July to the low at about $3.69 last week, and I would be an aggressive seller on this July contract if this market is able to rally up toward the $4 level and better. The contract high is $4.08 recorded in early September, and that type of rally should be sold aggressively if you need price protection on the hard red winter wheat crops. I don't expect us to see the July Kansas City wheat futures at $4 and better come harvest next year.
