Weekly Purcell Agricultural Commodity Market Report

Mike Roberts
Commodity Marketing Agent
Virginia Tech

Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
August 30, 2005

Commodity markets have continued in a narrow trading range this week as analysts and forecasters continue to try and figure out the size of the '05 U.S. corn and soybean crops. Many expect the next WSDE report to show corn estimates in the 10.0 billion bushel range while others see no reason to lower production estimates below 10.4 billion bushels. Non-USDA Soybean production estimates show support for estimates around the 2.8 billion. The next report is due out with not many expected surprises on Monday, September 12.

Tuesday's close on DEC '05 corn was down 5.4¢ from one week ago to $2.186/bu. Local opening corn basis ranged widely from +44¢ in some areas to -19¢ near corn production areas. The advice still holds to be aggressively closing short positions in futures while remaining 50-60% contracted if you are in a weak basis area. If the basis remains weak, look hard at storage costs for the remainder of the crop. Remember, a strong basis means a better cash market and determines whether storage will work or not. Those near strong basis should seriously think about contracting more of the '05 crop at this time. In addition, Hurricane Katrina is expected to contribute to higher fuel costs as harvest nears. It might be a good idea to consider a price floor for another 10-15% of the crop using a December Put option. As of this writing, a December Put option at $2.20 would cost 9.4¢ while a December $2.30 Put would cost 16.1¢.

The Chicago Board of Trade soybeans futures surged higher early on Tuesday as commodity funds covered short positions while sorting out the impact of recent weather on crops and port operations. NOV '05 soybeans were up 5.4¢ at $6.114/bu. The Relative Strength Index (RSI) closed at 32.42 showing a still somewhat oversold market. Cash marketers 50-60% contracted should continue to be patient for now. As demand stays strong, better prices after harvest remain a possibility.

As of Tuesday, noon, SEPT '05 was off 3.2¢ closing at $3.072/bu while DEC '05 Wheat was off 3¢ to $3.262/bu on Tuesday's close. Resistance at $3.442 remains unbroken. Last week, it was mentioned the July 2006 futures price may present some opportunities for wheat growers. It might be a good time for wheat producers to consider placing short hedges on the July '06 futures in pricing up to 20-30% of the 2006 crop. 1980 Ð 2002 futures data show that wheat prices can get to between $3.51 -$3.75 up to 39.9% of the time. The contract high near $3.83 for July '06 Wheat on July Chicago might be worth watching if we get a better rally.

Live cattle futures moved sharply lower midday as fund buying ceased and commercial sales took charge. August '05 Live Cattle were off $0.475 to $82.75/cwt while October LC '05 was off $1.075 to $82.525/cwt. Resistance at $83.60 held. The August Contract expires on Wednesday. Profit taking and long liquidation after recent gains and the posting of a three week high in October on Monday pushed futures down into light selling stops from technical traders. The market had appeared slightly overbought with the nine-day RSI slightly over seventy. Traders still expected steady to $1 per cwt higher cash cattle prices this week due to fewer cattle for sale and firm beef prices. Choice boxed beef rose to a two-week high early on Tuesday. The average packer margin for Tuesday was estimated at a negative $3.15 per head, up from a negative $10.05 on Monday, according to HedgersEdge.com.

Feeder cattle futures rallied early on strong demand for cash feeders, reduced feed costs, and strong fed cattle markets. Live cattle dragged feeders down by midday. Resistance of $109.35 was broken last Friday closing up $.50 at $109.875 last Friday. On Tuesday, October '05 feeder cattle closed at $110.075/cwt. approaching but not breaching the Life of Contract high, $111.15/cwt. established May 17. Profit taking took its toll pushing futures down into some sell stops. The closely watched Oklahoma City feeder auction had feed cattle trading steady to $1 higher on Monday. Those needing light cattle in the fall who have long hedges in place might think about selling those long hedges to take profits. This may be a premium to the cash market that is too big to maintain. Hedgers should think about aggressively placing short hedges in this market. If new crop corn production dips toward 10.0 billion bushels as some expect, feeder cattle prices will be pushed down on any rally by corn.

October '05 lean hogs were off $0.025 to $63.825/cwt. December '05 lean hogs were off as well by $0.45 to $61.00. Steady to firm cash hog markets and a higher pork carcass cutout provided underlying support but futures retreated on profit taking. Packers appear to be showing good interest for hogs based on profitable cutout margins but futures were somewhat overbought after posting some contract highs in back months. The average packer margin for Tuesday was estimated at a positive $8.90 per head, up from a positive $8.30 on Monday, according to HedgersEdge.com. Shorts have been mostly stopped out of hedges covering 4th quarter marketings. All risk should be carried in the cash market for now waiting on technical signs.

Download Purcell in PDF format

Remember, when working with futures, risk is involved. Past performance does not indicate a promise of future results. For comments or questions you may contact Mike Roberts at mrob@vt.edu