Weekly Purcell Agricultural Commodity Market Report

Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
June 28, 2005

The threat of rain and cooler weather prompted the big move in the grains and oilseeds on Monday. November soybeans were down $0.50 and December corn closed more than $0.11 lower. I show the huge move on the November soybeans this week. Unless we get a turn to very dry weather and dry forecasts again, I suspect the highs last week will turn out to be the tops for the year. This was a rally that ran too high to be sustained by the bearish fundamentals. I would repeat what I said earlier in the season, that soybeans in November are likely to be closer to $5.00 than to $7.00. I hope producers all across the country have beans priced around $7.00 or higher either in cash contracts, options, or futures directly. Look for the active selling by funds and sell stops to continue in the Tuesday session.

The close on December corn was down hard but near the middle of the trading range on Monday. If the Tuesday trading levels are higher, it would not be a surprise. Dry weather in June has more potential to hurt the corn crop than the soybean crop. The gap on the December chart that starts at $2.50 and extends down to the $2.47 area will now be resistance and rallies back to that area should be seen as added hedging opportunities. Continued and sustained dry weather, possible but unlikely, could cause prices back above $2.50, but I would not count on that to get my corn priced. Long hedgers who need protection against the small chance of corn going to $3.00 or higher should hold long hedges or replace them if they were bold and sold them to take profits last week on the rally to the mid $2.50s.

We see how much wheat prices have been dependent on soybeans and corn, and especially soybeans. Wheat was down 7 to 8 cents in Chicago and Kansas City on Monday. If the weather market is done in soybeans and corn, and we have to get some of that forecasted rains for that to be true, then the wheat markets will move lower. I would start to buy back short hedges around the $3.10 level in both markets. Commercial firms looking for long hedges will now see a smaller chance of $3.00 or lower and may start to buy the July contracts in the $3.10 area, perhaps a little higher in Kansas City.

The August live cattle are trying to put in a short term bottom above $79. Monday's trading range was an outside day and the close was higher. Volume has been bigger on the up days recently, and there does not appear to be big selling pressure. The best cash prices last week were around $83 that came late in the week as the Choice boxed beef values started to turn higher from the $133 to $134 area. I would not be quick to lift short hedges. There is resistance in the chart gap above $81 on the August. With the uncertainty in the export picture that has been accentuated by the new case of BSE, we could see the lows tested again. I see no quick return to the rampant bull market we had in cattle just a few weeks back and would be patient with the short hedges.

August feeder cattle also showed an outside day on Monday with an open at the daily low of $106.85 and then a strong close. Feeder cattle were helped by the resiliency in live cattle and the weakness in corn and the close was at $109.625. This market could drift down toward the support provided by the low and the chart gap near $106, but I don't see more weakness than that unless some new shock hits the cattle market. I would be patient and hold short hedges until the market shows signs of a more complete bottom.

Cash hog prices continue to drift lower with the weighted average national direct price on Monday in the $64 to $65 area. The July contract is trading near $66, but the big interest is in the June 24 Hogs and Pigs report that showed total inventory even with last year's June 1 numbers and the breeding herd up only 1 percent. This put the October and December contracts up the $2.00 daily limit. I suspect that generally bullish report will spell the end to the slide in lean hog prices. Look for a chance to pull short hedges in the summer contracts as the distant contracts start to lose some of their big seasonal price discount and climb back up toward breakeven status which is about $60 in lean hogs and translates to about $45 on a live basis.

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