Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
August 3, 2004
The true picture for the year in grains and oilseeds is starting to emerge. Earlier in the year, the price and ending stocks picture for soybeans in the U.S. was suggesting $7.00 soybean this fall, but the world picture was much different. Stocks at the world level were being projected at the second largest level on record, and that price and ending stock picture suggested U.S. soybean prices closer to $5.00. We have had both $7.00 and higher and $5.00 plus this year with the new crop November trading in the $5.60s in Tuesday trade under the weight of what could be a huge soybean crop. Add the possibility of an 11 billion bushel corn crop and we have the conditions for relatively low grain and oilseed prices.
The wheat market is trying to rally with the December Chicago bouncing up from near the $3.21 contract lows. As a selective hedger, I would be buying back short hedges on wheat you have in storage. Tuesday's positive close suggests we have some upside potential with at least a modest post-harvest rally now quite likely. Hold the short hedges on 2005 wheat. We have not seen enough movement there to merit looking at buying back short hedges.
In corn, watch for signs of buying support as we make new lows on the December and watch support on the weekly charts across lows of about $2.05 from July of 2003. It will be the nearly September we need to watch for tests of the weekly lows and that contract is around $2.18 on Tuesday. I see little risk associated with buying back short hedges on December corn on price dips from current levels if you have good profits in those positions. Users of corn can place long hedges here or be patient and wait. This corn market is going to be absorbing a huge crop and quick or big rallies are not likely.
There could be more downslide in the soybean market if weather continues to be favorable during August. The crop could be huge and it will have to compete in the world market with a large South American crop. Make the November soybean futures show buying support and signs of a bottom before buying back short hedges. I would rather hold short hedges on the 2005 crop toward harvest this year to see if there is a chance to buy back when the November 2004 futures are down toward $5.00, and I do think we will see that November down toward $5.00 unless the weather turns hot and dry in a hurry.
Cash cattle traded as high as $86 last week but closed the week around $84. Choice grade boxed beef was near $143 early last week, but is down to the $139 area this week with the Tuesday morning report showing the first positive daily change. Live cattle futures gapped down on Friday. Cash hog prices are still very profitable but are starting to show moves to the downside on a daily or weekly basis. It is August, and there is always concern about whether domestic demand and export movements will hold. Record high beef prices are good but high prices will also constrain volume at the consumer level and we need good Labor Day buying. Tuesday's live cattle and feeder cattle futures are reflecting some uncertainty are down hard at the close.
Lean hog futures are well above uptrend lines, but I would continue to look at short hedges. Huge profit margins can be locked in and if the $76 or so cash market, $56-57 on a live basis, starts to weaken on a seasonal basis, short hedges out through the end of the year will make sense. It is hard to make a mistake if you can lock in profits up to $50 per head.
The lower prices in the live cattle futures on Tuesday may be suggesting more to come. Hold short hedges in August until August cattle are sold. The inability of the October and December contracts to hold new contract highs from July 27, up to $91.72 on the October and $91.95 on the December, is very negative. I have noted I did not think we can hold above $90 and suggested short hedge positions. Hold short hedges in the fall and winter cattle. And even though the feeder cattle futures have been stronger as corn costs come down, Tuesdays lower prices are the start of a correction for the fall contracts in this complex. Hold short hedges in feeder cattle or get short hedges placed or replaced this week.
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