Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
March 4, 2003
The February live cattle futures were limit down on Friday as trade came to an end, and that set a negative tone for early-week trade. Cash prices last week were $79-$80 and it will be hard to hold those prices this week. Boxed beef values have been largely constant for the past week, and that does not encourage higher cash cattle prices. The feedlots report they are current, and the discount in live cattle futures out past what had been the high priced nearby February encourages them to stay current and not hold the cattle. The April dipped on Monday below the support across recent lows at $75, and that surprised me. That contract had corrected back to the $78.10 level last Monday, a full correction of the $5 break from the double top at $80 down to $75. With the Monday close below $75, there is now downside risk from the $75 level and there is a chart gap below $74 that could be challenged. Longer term, I expect to see this market rally again, especially if we see any start of heifer holdback and herd building during the spring months.
The feeder cattle futures are trying to consolidate above the recent dip to $74 on the March futures with more support at the $73.50 contract low. I am positive on this part of the cattle sector and show the March futures contract again this week. Be aggressive on buying back short hedges on spring and summer feeder cattle if you are acting as a selective hedger on dips to the support planes across those lows. I see little or no downside risk from those levels as likely or even possible until later in the year and then only if the corn crop gets in trouble. I would also be aggressive in buying spring and summer feeder cattle futures to place long hedges on dips toward the $73.50-$74 support zone on the March contract. I think this shapes up as an excellent opportunity for any grass, back grounding, or cattle feeding programs to place long hedges.
The monthly Hogs and Pigs report was generally positive, and we have seen closes above downtrend lines on the April lean hog futures on Friday and Monday. That April contract may have potential to correct back up into the $57 to $58 price range, but it is likely to be slow in developing. If we do get a rally of that magnitude, the July may challenge the late December chart gap up around $63, and these rallies should be seen as pricing opportunities on the spring and summer futures. With cheap corn, lean hog futures at $60 or above are profitable and those profit windows do not usually stay open very long.
March corn is likely to continue to bounce off support around $2.30 until we approach the late March Prospective Plantings report, and that means the December will bounce off support in the high $2.30s. The first resistance on the December is the early February highs around $2.48, and that would be the first objective I would watch to place or replace short hedges or take profits on long hedges. To get there, the March will need to challenge the February highs in the low $2.40s and the early January high near $2.47. I expect to see rallies to those levels before the end of the month but would not expect to see any major move in corn until we get past the Prospective Plantings report. That report would have to be surprisingly bullish to move this market. Expectations will be for a near record corn acreage.
The wheat markets are struggling under pressure from weak export activity and improving weather on the winter wheat crop. The March Chicago chart has lows around $3.10, and that is keeping the July futures above $3. Monday's close was decent, and any rally toward the recent highs in the $3.26 to $3.30 range by the July Chicago is a possible pricing opportunity. The comparable highs on the Kansas City July are just above $3.45, and I would place or replace short hedges on rallies to those levels. We are likely to see a retest of the lows as the U.S. market continues to be too high in price to compete in the world market.
The March soybean futures have now failed three times near $5.85, and that is an important message. Looking at the possible record crop in South America, with that crop now larger than the U.S. crop, old crop soybeans should be sold in the $5.80 to $5.85 range on the March. And that means the November will have a hard time moving above the mid-February highs near $5.35. I would sell this market aggressively to sell or price old crop product and hedge the new crop on rallies to these highs. It is the export picture that has been better in soybeans than in corn and wheat, and exports have given the chart picture here a more positive look. But that is likely to come to an end as the South American crop starts to hit the export market in the form of soybeans, soybean meal, and soybean oil across the next few months.
