Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
November 19, 2002
In the grain and oilseed markets, both corn and soybeans are 93 percent-94 percent harvested. We are in a period where the market will mark time and wait for the November report to see if there is any substantial change in crop production, usage, and stock estimates. Meanwhile, there will be more attention paid to the weekly export inspections, and export movement in corn has been decent. Harvest pressure ought to be behind us. If we are going to see any move across the next several days in corn in any direction, it may be to the upside. On the March corn chart, it looks as if we have a low that will now provide some support just below $2.40 from about 10 days back. This market could rally 20 cents per bushel from current levels before it runs into resistance across the harvest-period highs on the March around $2.65. A rally of that magnitude might push the new-crop December 2003 back up toward its comparable highs at $2.60, but we need to be patient in that market because there could be some decent upside potential in 2003 corn. Given what I am seeing, I would be inclined to look at lifting short hedges if you still hold them in corn and/or placing long hedges. I believe the next move we will see in this market is going to be a correction back up toward possibly the $2.60 level on the March contract.
The chart pattern is probably going to be choppy in the soybean complex as well. There is talk in Tuesday's session about China possibly buying soybeans or soybean products from the U.S., and that market is up 6 cents-7 cents on the day. There are recent highs on the March soybeans just under $5.70 and then the major resistance on this contract will then be the September highs, which are up toward $5.90. Wait on short hedges until we see a challenge to those recent highs at $5.70, and I would tend to be aggressive on selling old-crop product and pricing soybeans in storage only if we do see some challenge on the March of the September highs above $5.90. In terms of the overall picture, I like the prospects for a modest rally in soybeans from current price levels a bit better than in corn, but both of these markets may work higher together. We need better prices before we do additional pricing and think about taking profits on long hedges or placing or replacing short hedges.
In wheat, the old-crop charts look a bit different than the new-crop charts in both Chicago and Kansas City. The Chicago March is showing us two lows in the low-to-mid $3.60s across the past two months. In Kansas City, the March shows a more dramatic decline in terms of recent lows with the dip last week down toward the $4 level and then a rally from that level. None of this suggests that we have yet a sufficient rally to think about pricing more new-crop product in the July contracts. In both Chicago and Kansas City we see more of a downward trend on those July contracts, with recent lows in Kansas City below $3.50 and lows on the July Chicago down around the $3.10 area. This market will make a correction back to the upside and we will have better prices than we are seeing this week. Producers should hold off on any short hedging of new-crop and, for the moment at least, hold off on selling old-crop and/or hedging crop you are holding in storage until we see better prices.
In the cattle complex, Tuesday's feeder cattle and live cattle futures are steady to down a bit after recording a very strong day on Monday in response to last Friday's Cattle on Feed report. That report showed placements during October down 12 percent, marketings up 4 percent, and the on-feed count on November 1 down 9 percent. There was a lower on-feed number than the trade had been expecting. Tuesday morning's report on boxed beef showed the lighter Choice carcasses at $118.17, up $2.51 on the day, and the heavier Choice carcasses and the lighter Select carcasses were up even more. Since November 12, those lighter Choice types are up about $5.50. We are seeing the market react to the underlying fundamentals that suggest tightening numbers and tightening supplies for cyclical reasons, and that is being supplemented recently by the patterns in feedlot placements where numbers are well below last year's levels. That changes significantly the perceived supply of cattle in the first half of 2003, and we are seeing new contract highs being recorded in response to what is a legitimate and significant improvement in the fundamental picture for beef across the past several weeks. On the 2003 live cattle contracts, you can sketch a trend line across the early-October and then the late-October lows, and that opportunity is apparent on the April futures, for example. Let this market run to the upside and then be prepared to forward price these cattle on a close below that trend line as one logical approach since we are not sure what the upside possibilities could be as this bull market develops and strengthens. It is going to be helped by the improving situation in pork, where we are not at prices nearly as burdensome as we had earlier anticipated. We will see the cash prices start to move up into the high $70s, and we may not be as far away from an $80 market as I would have earlier thought given this recent Cattle on Feed report.
In feeder cattle, I show the March contract again this week, and we can use the same trend line sketched across the early-October and early-November lows to manage this market. Monday's price made a new high, but the market is faltering a bit today and may not march straight up from here. So keep that trend line in place and be prepared to sell to place short hedges on cattle you will sell next spring and to take profits on long hedges you might have placed in the past few weeks when this contract dipped as low as $76. I am confident that this market will correct to the downside and give you an opportunity to take profits on short hedges and/or replace long hedges before we move further up into the $80s.
The weighted average prices in the national direct hog market are just below $37, and that, of course, means that on the traditional live hog basis, prices are below $30. The lean hog futures are showing a huge premium to the cash, with December trading in the mid-$40s and February around $52-$53. We can use the same approach on the lean hogs that we have been discussing on the feeder cattle, with trend lines sketched across those September-November lows. Eventually this market will run into selling resistance, trade sideways, and give a sell signal below that long-standing trend line. When that occurs, we are likely to see a significant correction of the last move up that has carried on the February, for example, from just above $41 back in late August to $54 about 10 days back. Even a 38 percent correction of this last move up would be a significant move to the downside and allow selective hedgers to be in a position to take profits on short hedges you placed when we see a close below the trend lines.
