Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
April 22, 2003
Last Thursday's Cattle on Feed report gave us a placements figure for March that was slightly below average expectations. That helped give us a 40 cent-50 cent gain in the cattle complex on Monday, the first day of trade after the report. Tuesday's action is not following through to the upside with prices on most of the live cattle and feeder cattle futures only modestly higher for the day. Boxed beef values for the lighter Choice types that were above $135 last week have slipped back below $135 in early-week action. Cash prices got as high as $81, with a pen or two at $81.50, last week but closed out the week with some cattle selling at $78.50. Today, there has been one pen of cattle sold at $80 in Kansas, and much of the trade will be seen later in the week probably at or around $80 with any weakness below that level likely to be quite minor. Feedlots are apparently quite current, and unless we see a big decline in boxed beef values, I believe we will see continued relatively aggressive slaughter activity by the packers now that their margins have climbed back into the black. This recent action gives us a completed correction of the early March highs in virtually every live cattle and feeder cattle futures contract. It is apparent on the June live cattle with last Thursday's low coming down toward $70.20, about a $2 correction off the early April highs around $70.25. We see essentially the same pattern on the August live cattle contract and on the feeder cattle contract where the correction was a bit more modest. I am showing the August feeder cattle contract this week as typical of what we see in all the cattle with the ability now to sketch in a very legitimate trend line and let this market move to the upside. I would be inclined to place short hedges in this market only on a close below that uptrend line. I do think we are in something of a bull market and have some upside potential in both the live cattle and the feeder cattle contracts. If you hold long hedges in the late spring and summer feeder cattle, I might be inclined to take profits on those if the August market can rally up toward the early April highs around $82.60.
Carcass-based weighted average cash prices for hogs are still in the $46-$47 area for the direct trade around the country. We will start to see some reduction in daily slaughter levels as we move through April. The more distant contracts had a fairly nice gain on Monday and the July and later contracts are showing modest gains again in Tuesday's session. Looking at the June lean hog contract, I expect to see some continued rally in this market, but I see resistance in the $62-$63.50 area as the market climbs up toward February and March highs. I would be inclined to sell rallies to those levels. It may be that this market will get turned back with selling pressure under the downtrend line that can be constructed by hooking the late December contract high and the highs during February and March. That is coming in across the next few trading days in the $61.50-$62 area. Generally, I would like to sell rallies in this market and look for the market to work higher as we move into the summer where we normally see significant seasonal increases in prices.
The soybean market finally ran into some resistance as the old-crop May contract traded up around $6.20. The market is down in Tuesday's session and closed at $6.10. There is talk about SARS disease problems in China hurting that country's interest and willingness to buy soybeans and soybean products. This precipitous run-up in the old-crop contract has come at a rate that usually cannot be sustained. The strength in old-crop has pushed the new-crop November up within 4 cent-5 cents of the contract high at $5.43 across the past few days with a Tuesday close of $5.38. I continue to offer the same line of advice I have offered in this market for some time, and that is: sell rallies to the recent highs and toward the contract high at $5.43. Anything in the $5.37-$5.43 area ought to be seen as a possible forward pricing opportunity and the chance to move up to 50 percent or more forward priced in 2003 soybeans and we are being offered prices at those levels in the November this week.
The corn markets are not going to do much of anything until we see what type of planting-period weather we have. We got a bit of bullish help in the Prospective Plantings report in late March with an acreage number a bit smaller than we expected, but that just pushed the new-crop May toward some old highs around the $2.45-$2.46 area, and the market has failed there again. Look for this market to chop sideways as we move into planting-period weather and have a difficult time getting above those recent highs in the $2.45-$2.50 range on the May unless we do get some delays in planting. That probably means we will be fortunate to see the new-crop December challenge its February high around $2.47-$2.48. If we can get a rally back to those levels, I think we are looking at a forward pricing opportunity for producers to move up toward a 50 percent priced for 2003 production and a chance for those holding long hedges in corn to take profits. This market is not likely to run up through recent resistance planes before it corrects to the downside again.
In the wheat market, the July Chicago contract is looking a bit more positive than is the July in Kansas City. I said last week that I look for this July Chicago to try to build a bottom across the $2.80 level which goes back to a contract low of May 2002. A late March dip down to that level uncovered buying support, and this market is trying to stage at least a modest rally. A 50 percent correction of the last move down would put it back up into the $3.05-$3.10 area with major resistance across the late January and February highs in the $3.25-$3.30 area. I would want to sell this market aggressively on rallies up into those areas and be especially aggressive if we see a $3.25 price level again on the July Chicago wheat. The Kansas City market is trying to build a double bottom around $3, which is slightly below its contract low from May 2002. There is a chart gap that will be resistance just under $3.20, and any opportunity to sell this market still higher and up into the $3.25-$3.30 range ought to be seen as a forward pricing opportunity as we move toward harvest with generally good crop conditions, good yield prospects, and the possibility of sustained downward pressure on price as we move through harvest. Get to 60 percent-70 percent priced on rallies if you are comfortable being a selective hedger.
