Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
August 24, 2004
The livestock markets are being hit hard on Tuesday. Hogs, live cattle and feeder cattle futures are down hard with breaks of trend lines and moves below recent lows. This is not a surprise to me, but I have had a hard time knowing when it might occur. Prices across recent weeks have been above $90.00 on October and December live cattle and I did not think we could hold those lofty levels. October lean hogs traded above $70.00, offering lucrative profits.
It is the October contracts in cattle and hogs that worry me. If October hogs close below the $63.95 low of July 22, we are likely to see another $2-3 to the downside. On live cattle, the support is across the July 16 low at $84.65, and we closed below that level on Tuesday.
Hold short hedges in this complex. Boxed beef values for Choice grades are above $140.00 on Tuesday and up on the day, but cash cattle trade is sparse and will likely develop in the low $80's. Weighted average cash hog prices are below $72.00 in the national direct trade, and are drifting lower most days. October feeder cattle are reacting to lower live cattle futures and trading lower and trend lines have been taken out here as well. Recently, I have suggested getting short hedges in place and answering a margin call on rallies if needed to keep the short hedges in place. Stay on the short hedges.
November soybeans rallied sharply on Monday but there has been no follow through on Tuesday. Monday's really looks like a short covering rally as trading funds bought to cover short positions as the market took out a recent high. There is some talk of frost damage in Minnesota but that concern seems diminished on Tuesday. If you have short hedges in soybeans, hold them. If you bought back short positions to close them out on recent dips, use a rally back to Monday's high at $6.14 on the November to replace them. We are still below the trend line on the chart that hooks the June and April highs and there is no bottom in place.
The highs this week were at $2.45 on the December 2004 corn, about $.20 above the $2.25 lows. I expect this market will drift lower and test the $2.25 again with most of Monday's gains coming from the soybean sector. So, hold short hedges or, if you bought them back on the second dip to $2.25, replace them near $2.45. Users of corn should relax. This market has no big rally that is imminent unless we have very unusual and severe weather damage like an extremely early frost and this is most unlikely. It will take a crop of 11.0 billion bushels or more to push the December down toward $2.00, I think, but that could happen if the weather stays favorable.
Modest rallies on wheat came after we had seen a set of consecutive closes below old contract lows on the Chicago December 2004 contract. I had suggested buying back short hedges but the market threw us a curve on the closes below the old $3.21 low. Let's see what develops here. I would not add the short hedges again until we see a better rally. If you still have short hedges and did not buy them back, then hold them until we see a clearer picture of a bottom. Unless corn and soybeans turn very bearish, I think we will see a post harvest rally in this market that is better than anything we have seen to date even though world stocks are building. We are well below highs of last year in wheat, and a seasonal rally here is quite likely.
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