Weekly Purcell Agricultural Commodity Market Report
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
July 5, 2005
November soybeans recorded prices last week over $1.00 off the $7.70 life of contract from about 10 days back. The market is very volatile. We will see more of that volatility with rain playing its hit and miss game over the long holiday weekend. The July 4 weather front swept across the Illinois/Indiana area, one of the major producing areas that needed rain. Tuesday's higher prices suggest that coverage and rainfall amounts were a bit disappointing. The major trend line across the February and May lows will be the next major technical pattern on the chart as the market is buffeted by weather patterns and forecasts for weather. I would hold short hedges placed at $6.80 or better. The fundamentals and now the chart patterns are starting to suggest lower prices in the long run this year.
The July corn was within 7 cents of the $2.03 contract low last week, and the December dipped to the $2.30 level, within 10 cents of its contract low. If the rain coverage over the 4th was as general as it appeared to be watching the weather maps, then we will see more dips in this market. Tuesday's rally may be short lived. Short hedges on the July corn in storage might be lifted on dips toward the $2.00 level, and do the same in new crop corn on a dip to the $2.20 area. Users of corn who are off long hedges should take advantage of such price dips to get back on the long hedges. This is not a bull market in corn this year unless the weather destroys a significant part of the yield potential which is possible but not likely.
July hedges in wheat will need to get lifted this week. Downside targets are $3.10 in Chicago and $3.15 in Kansas City. Producers should be ready on any price dips. The next job will be to decide whether to store the wheat if you have on-farm bins. Remember, the rule is to store wheat if the expected increase in the basis is bigger than the costs of storage; be sure to include interest charges on the money you still have tied up in the wheat since you are not selling. Said another way, hedge when the break even costs on March 1, the cash price at harvest you are not taking plus the costs of storage, is less than the March futures adjusted for basis. That means you can forward price the wheat at a profit. Then, sell the futures to forward price or look for a cash contract that will lock in a profit.
Cash fed cattle prices were best at the end of the week in the $82 or a little better range. The August futures are trying to hold above $79. Boxed beef values had rallied from $133-134 for the Choice types but were lower again and in the $135 area on Friday. I would hold short hedges in this market as the market reacts to any lingering impacts of the last BSE finding. Let the market build a bottom in the $79 plus area before considering buying back short hedges in the August. It is time to be prudent and cautious in this market.
August feeder cattle are stronger than the live cattle contracts and have climbed back above $110. The last cattle on feed report gave some support with fewer numbers on feed and fewer being placed than some of us expected. Remember that we are in the cycle of herd building and heifer holding with strong demand for the first time since the early 1970's. Short hedges or just being in the cash market appear to be okay as we move toward the first of August.
August lean hogs are turning higher from the $64 level. The most distant contracts are much stronger coming out of the June Hogs and Pigs report. I would look at buying back all short hedges in the summer contracts. We will start to monitor the up trends in the October and December and early 2006 contracts. This is an unusual situation in hogs where we have seen many months of profitable production. We still do not see any signs of significant expansion to start the process that swells production and inevitably brings lower prices again. The October and December contracts, where we always see seasonal pressure, have a chance to climb well back into profitable levels, so let's be alert for opportunities.
Download Purcell in PDF format