Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
April 1, 2003
The annual Prospective Plantings report is always very important in the grain and oilseed markets, and certainly this year is no exception. The early release on March 31 of the report that indicates survey results in terms of what farmers say they are going to plant was bullish for corn and wheat. In corn, planted acreage last year was 79.054 million acres in corn, and the pre-report average expectation was for 80.5 million acres to be planted this year. The range of expectations was 80.1 to 81.0 million, and this reflected widespread expectations that some acreage would shift in the Midwest from soybeans to corn. The market was up about 8 cents on Monday and closed Tuesday's session up about 2 cents.
We have some resistance across recent highs starting just above $2.40 on the May corn futures. That is an early March high that ranges back to an early January high, which is just under $2.50. I think this report gives us a better chance than we had prior to the report for this market to stage a rally that will move back up toward the $2.50 level on the May corn futures, and that is about 20 cents-25 cents off the lows we saw last week. That is likely to help push the December corn futures back up toward its early March high, which is around the $2.48 level. I would be inclined to take profits on long hedges you are holding in all the corn futures and place or replace short hedges on old-crop corn and on new-crop corn when we see these markets rally up toward those resistance planes. By all means, be aggressive if that May contract, which is the lead contract now, is able to challenge the $2.50 level again. We have had a bullish report but the market could not hold all the gains on Monday, the day of the report, and is holding small gains in Tuesday's session. We are still in a bear market in this corn complex looking for short-term rallies to get price protection and to take advantage of a selective hedging program in long hedges.
This report probably eliminates any chance that the nearby May soybean futures will go up toward their highs from early March. This market has stopped on any rallies on several occasions recently around the $5.80 level, and with it closing down 3 cents-4 cents in Tuesday's session, I suspect we have seen the last of those rallies in the short term. Mark this $5.80 level and that would mean about an 6 cents-7 cents rally from the levels at which we closed on Tuesday, and that might get the new-crop November back up toward its recent highs around $5.20. I would sell these markets, both old-crop product and place or replace short hedges on the November on rallies, and if we do see an opportunity for the November to try its early-March highs up above $5.25, I would be especially aggressive. This report was basically bearish on soybeans, and coming in the presence of a record large crop in South America, it is hard to get excited about upside potential in the soybean complex.
In wheat, the report was slightly bullish in that expected acreage was a bit below the average expectation coming into the report, primarily because there are fewer acres to be planted to spring wheat than had been expected. We are seeing some effort for this market to find a short-term bottom around $2.90 in the July Chicago and around $3.05 in the July Kansas City and perhaps give us a modest rally, but Tuesday closes are down. Any rally of about 10 cents-15 cents from current levels is going to run into a chart gap and some resistance up around $3.18 on the July Kansas City, and we have some recent highs around $2.95 on the July Chicago. A modest correction of the last break down would carry us back up to those levels or better, and if you have lifted short hedges on your wheat, you might want to replace them again on a respectable rally. This market could come under pressure again as we move out through the yield-determining part of the winter wheat growing season and toward harvest.
Most of the fed cattle sales late last week were at $78, and we have seen some limited sales so far this week in Kansas around $78. There are some expectations in the feedlot complex that the relatively tight showlists will prompt a $79 price this week. The lighter Choice boxed beef values were at $126.83, up 64 cents at noon on Tuesday. This would give a bit of room for somewhat higher cash prices, but keep in mind that there are reports that the packer margins have been fairly tight at recent levels with the boxed beef complex around $125 with cash cattle in the $78-$79 range. On the charts, both the April and June have closed above downtrend lines on the chart and are trying to stage at least a modest rally with the April showing signs of moving above several recent highs, which are around $76. As the nearby April completes a correction of this last move down from $78 toward $72, we will see movement into the $76-$77 range. I would be a fairly aggressive seller in cattle if April can rally back toward its earlier high at $78 where I think there will be substantial resistance. You can also sketch a trend line under the market using Monday's low as one of the points, and be prepared to place or replace short hedges in this complex in the April and June futures when we a close below that uptrend line.
The feeder cattle complex looks much like the live cattle contract. That nearby April that I am showing again this week has a close above the downtrend line hooking the February and late January highs. We may have a head-and-shoulders bottom on this market, and if so we have seen a close recently above the neckline, and I am showing that possible pattern this week. That suggests this April could do more than make a correction of this last move down from just under $81 back in late January down toward the $74 level. Look for it to rally up toward the $79 level, correct to the downside, and then try to rally again as we continue to have a long-term bullish posture tied to the cattle cycle in the feeder cattle complex. I would hold long hedges in this market and I would not place or replace short hedges in these late spring and summer feeder cattle until we see a sell signal with a close below the uptrend line we should be able to draw across the next week to 10 days as this market.
The March 28 quarterly Hogs and Pigs report was basically positive, largely in line with expectations. March 1 total inventory was down 2 percent from 2002 levels and, perhaps more importantly longer term, the breeding herd was down 4 percent. There is no evidence that the pigs per litter are still going up rapidly and offsetting the impact of the reductions in the breeding herd, and this argues for decent prices as we move into the summer months when we normally get the seasonal price strength. But after we got a modest advance in Monday's session, which was the first trading day after the report, this market has turned sour on Tuesday. The June contract, for example, traded down the daily limit and closed down $1.90 with virtually all the other futures down $1 or more. The modest rally that we had seen in the cash market has run its strength with the national direct hog market now on a carcass basis back down around $46 per cwt. Obviously, this report was not strong enough to give us any sustained gains in this market. We need to hold short hedges until we see some signs that fundamentals are picking up and starting to give us a bottom.
