Weekly Purcell Agricultural Commodity Market Report
Mike Roberts
Commodity Marketing Agent
Virginia Tech
Wayne D. Purcell
Agricultural and Applied Economics
Virginia Tech
September 6, 2005
Since more than half of U.S. Grain exports go down the Mississippi river through the port of New Orleans, measures are being taken to get the port opened as soon as possible. Estimates of a three month closure have been reported although no on really knows. The overabundance of harvest will most likely sit in storage which is already in short supply. The impact this is going to have on agriculture is going to be both positive and negative. As a result, the dollar loss for some crop farmers will be larger due to a weakening basis. So far, the impact on futures prices has not been negative.
Surprisingly SEPT '05 soybeans were up 16.2¢ at $6.046/bu. while NOV '05 beans were up 15.2¢ closing at $6.142 per bushel. The market was staging a technical recovery after Friday's fall to near technically oversold levels. Friday's closing RSI was 33.46. Also, fundamentals supported price showing some grain being loaded in the Gulf amid concerns that continued drier-than-desired weather in parts of the eastern Midwest could hamper the filling of pods in this year's soybean crop. Meteorlogix weather said that conditions favor late pod-filling except in portions of Illinois, eastern Iowa, and, Missouri where rain is needed. Several funds were early buyers of NOV '05 beans traders said. Cash basis bids were weaker both locally and in the U.S. Midwest due to export and storage concerns encouraging slow farmer offerings. Technical analysis shows a bearish tendency with support hovering near the $5.92 level and the next possible measuring objective near $5.46 once support fails. If you are in a strict cash position and have marketed up to 50%-60% of your crop, be patient for now. Short hedgers should also hold those positions at this time.
Corn futures were higher Tuesday from spill-over buying from the soy complex and short covering after last week's declining prices. The markets are telling us there may be some optimism that exports from New Orleans will re-start sooner rather than later. An elevator owned by a Japanese exporter was said to be loading a ship in the U.S. Gulf, raising hopes for a resumption of grain exports later this week. There is also some speculative buying going on as well by the funds. Both SEPT '05 and DEC '05 corn were up 4¢ from Friday's close to $2.074/bu and $2.212/bu respectively. Cash positions forward contracted to 50%-60% should know that if the downtrend is over collecting large LDPs may be in jeopardy. Last week's advice for hedgers was to aggressively close short positions if you were in a weak basis area. If you didn't close those short positions last week, you still have a chance to do so since the market is still trading somewhat sideways. Hedgers should also start thinking of the 2006 crop.
Spring Wheat futures in Minneapolis were higher Tuesday tracking the firm tone in outside grain markets while following the Chicago market. There was very little trading, traders said. The Chicago Board of Trade SEPT '05 Wheat futures was .4¢ higher trading at $3.07/bu. Open Interest, the combined number of short and long positions not closed, was down to just 594 contracts, slightly ahead of Tuesday's open. Wheat futures in Chicago found some support from reports that Gulf exports may not be disrupted too long. The advice for cash marketers to be patient on forward pricing any more of the '06 crop still holds. Hedgers should have 30%-45% of the '06 crop production protected with short hedges. As was stated last week, prices could get better if we get a rally.
Both Live and Feeder Cattle prices climbed above major chart resistance levels due largely to big fund buying. October '05 Feeders were up $1.55 to $110.125/cwt. Last week's market traded off fears of higher fuel prices and supply disruptions. Pre-hurricane level trading was evident today. It was reported the action was seen as short covering and lack of sell orders. The October '05 Live Cattle was also up $.625 from a week ago to $82.875/cwt. Talk of good beef sales during the Labor Day weekend fueled early commercial buying in cattle as beef plants will need to buy more cattle for more normal production schedules next week. Also supporting price was news that power was being restored to parts of the hurricane affected area, as well as fund buying adding to recent gains. As stated in last week's letter the futures premium may be to large to be maintained. Diverging RSI patterns indicate this. RSI divergence from price trend is often a strong signal that prices are about to change direction. This is creating a very attractive hedging opportunity. Hedgers should still think about being aggressively short in this market.
Lean hogs on the OCT '05 were up $.90 to $62.55/cwt. while the DEC '05 futures were up $.80 to $61.20/cwt. Hogs bounded higher despite steady -to-lower cash hog markets on short covering and buy stops. The average packer margin for Tuesday was estimated at a positive $11.30 per head, up from a positive $5.15 per head on Friday according to HedgersEdge.com. In an apparent response to weakness in the product market, packing companies slowed lines last Thursday. It is possible a backlog of barrows and gilts will soon hit the market even though the weights will be down. Last week's price action along with downward trending Price and RSI values on the OCT '05 Lean Hogs and a diverging RSI/Price relationship on the DEC '05 Lean Hogs strongly indicate that upward futures price direction has run its course. Last week's report recommended that all risk should be carried on the cash market while waiting on technical signs to place short hedges. That same advice holds but be ready to pull the trigger on a downward price move.
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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