Weekly Purcell Agricultural Commodity Market Report
Mike Roberts
Commodity Marketing Agent
Virginia Tech
October 25, 2005
CORN futures established a new low in Monday's trading going past the price objective of $2.014/bu forecasted in this report on 9/30/05. The DEC '05 opened steady to .4¢/bu lower on Tuesday at $1.990/bu and closed even with the day before at $1.994/bu. The rapid harvest of a big U.S. corn crop continued to act as an anchor on prices. The demand for corn continues to check any attempts to rally prices, traders said. The corn futures market is caught in the grip of bearish input from an abundant supply being plentiful enough to meet export and domestic demand because of the record corn crop of 11.8 billion bushels last year and crop production this year estimated to be 10.857 billion bushels, second only to last year's record crop output. The USDA late on Monday said 65 % of the crop had been harvested, in line with the trade estimates. This rate is up from 49 % last week and above the 5-year average of 62 %. Weather this week is forecast to favor late harvests in the Midwest despite cooler temperatures. Cash basis bids were firm as farmers made few sales and mostly delivered on previously negotiated contracts. Forward prices taken on 50-60% of the'05 crop look very, very good now. LDPs this morning range from 40¢/bu to 42¢/bu near the East Coast and from 44¢/bu to 46¢/bu in the corn belt. If you haven't already collected more LDPs as the crop harvest has progressed now is the time to do so. Basis improved in Virginia on Monday by as much as 3-5¢/bu in most areas. It would be best to be patient and wait for better basis improvement as the completion of harvest progresses before taking any action. Cash marketers have stored the crop on advice of this column. Cash corn prices should improve between now and January. Price the crop now in storage in late November to mid-December for January or February delivery. Hedgers should consider short positions on DEC '06 futures on up to 50-60% of the 2006 crop.
SOYBEANs at the CBOT opened 1¢/bu lower on Tuesday closing up 3¢/bu at $5.78/bu. Prices were seen consolidating near current levels amid a lack of fresh fundamentals, traders said. The crop progress report was near traders estimates with the USDA on Monday saying that 87 % of the crop was harvested. This was ahead of trader's estimates of 85 %. Harvest was also ahead of the 5-year average of 79 %. Outlook for a near-record U.S. soybean harvest and a slow export pace from a year ago continued to cast a bearish tone. Trade monitored export numbers off from last year despite steady Chinese interest. However, prices dipped in the absence of confirmed commitment from China to buy amid talk of fresh demand. Virginia basis weakened as beans rolled in because storage bins were full of corn. Midwest cash basis bids for beans were firm early Tuesday due to a lack of farmer sales there because of wet weather. Some reports of a +2¢/bu basis for soybeans were recorded in Nebraska. Skies were expected to clear re-energizing harvest. The decline in crude and concern over avian bird flu in Asia and Europe curtailed meal usage worldwide and also impacted soybean prices. Anticipation in soybean planted acreage estimates for the 2006 crop is also keeping price action down. Trading yesterday in the NOV '05 futures filled the upside gap established Wednesday, 10/12/05 in reaction to the October WASD report. However, the downside gap set last Friday was not filled. Technically, this still looks like a bottom but a close above $6.00/bu is necessary to confirm this. If you did not sell your beans at July's prices, you may be in need of more revenue. Due to a carry-in similar to corn, there could be January premiums to be had if storage is available. However, unlike the corn carry-in, the difference between December's carry and the more advance month's carry is not overly large. Cash marketers should continue to be patient if storage is available. Depending on storage costs, it may not pay to forward contract past January. Contracting for January may bring as much as 25¢/bu - 30¢/bu more than current cash prices while bringing in a modest LDP of between 2¢/bu and 5¢/bu between now and then. Hedgers in the NOV'05 crop should have closed those positions and are not anticipating a bullish market at the present.
WHEAT futures on the CBOT were mostly firm early on short covering and disappointing U.S. wheat crop condition ratings. At noon, EST, DEC '05 wheat futures was up 1¢/bu at $3.242/bu. In both Kansas City and Minneapolis wheat prices were coming off a technical breakdown on Monday. Monday's decline in both markets pushed the Relative Strength Indexes (RSI) to near 33. Chartists view an RSI of 30 or lower as one sign of an oversold market, while an RSI of 70 or above signal an overbought market. The RSI at the CBOT for DEC'05 wheat was 41.92 by 1:00 p.m., EST. Next support on the CBOT for DEC'05 wheat is pegged at $3.186/bushel. The funds were buying early and remain heavily net long in Kansas City and Minneapolis wheat, leaving those markets open to continued long liquidation. Cash basis bids for soft red winter wheat were steady to firm in the U.S. Midwest. Traders interviewed spoke of possible U.S. wheat sales to Iraq. Iraq said early this month the country would soon buy 1 million tonnes of U.S. wheat. This equates to 36.744 million bushels but there was no confirmation of any business. The conversation appeared to support Kansas City wheat against Chicago on inter-market spreads. Export was light overnight. The Monday USDA crop rating report rated the U.S. winter wheat crop good to excellent for 57 % of the crop, a noteworthy decline from 76 % a year ago. This is due in large part from the wheat states of Arkansas and Texas being drought-affected. Crop ratings also lagged in Oregon and Washington due to dryness. There was no report for Virginia wheat. The USDA report also stated that the '06 crop was 86 % planted and 65 % emerged, just ahead of the 84 % and 63 %, respectively. There was no crop condition report for Virginia where wheat is 27 % emerged. Selective Hedgers are out of the market and should not be short as the market trades sideways for direction. Cash marketers have sold the '05 crop and still should not have any of the '06 crop priced.
LIVE CATTLE news from the last USDA cattle on feed report shows as mildly bearish as it showed the Oct. 1 feedlot inventory and September placements to be larger than most trade estimates. The OCT'05LC was up $0.475 at $88.85/cwt by the end of the day. Futures were higher at midsession, but down from early highs. CME live and feeder cattle futures are higher in the wake of early fund buying based on the failure of key chart resistance barriers such as the 10- and 20 day moving averages. Moving averages work best in a market that presents major and sustained price trends. When a major price move develops, the moving average system is extremely effective because (1) there will never be a major and sustained downward trend where the short hedger is caught totally without protection, and (2) there will never be a major and sustained upward trend during which the selective short hedger is not out of the futures market and enjoying the benefits of being a cash market speculator. Conceptually, the idea is that in an upward or downward trending market, the shorter moving average tends to move faster and ÒleadsÓ the longer average. When the market turns, the shorter average turns more quickly and crosses the longer and slower moving average. It is this crossover action that generates the buy and sell signals. In the OCT'05 Live Cattle (LC) and the DEC'05 LC, the sell signals were generated yesterday at $89.436/cwt and $90.355 respectively. Pit sources said in interviews that fund buying appears near those lines in the DEC'05LC. Locals caught leaning to the short side rushed to cover losses. Firm cash beef prices on Tuesday underpinned futures. Early on, USDA quoted the choice cutout at $146.17/cwt, up $.043/cwt from Monday. The select cutout was $133.14, up $0.31/cwt. Cash markets were quiet on Tuesday and some analysts expect steady cash sales this week at $88/cwt in the Plains markets. The sharp price break estimated to be underway last week has not occurred ... yet. Cash producers should be aggressively marketing cattle at the proper weights. Live cattle pens are being kept current willing to slaughter lighter cattle. Conservative hedgers should be short in the DEC'0r and FEB'06 futures to cover some of the 4th and 1st quarter marketings.
FEEDER CATTLE on the OCT'05 were off $0.10/cwt at $115.75 after opening steady to higher on Tuesday. Additionally, the NOV'05 was up $0.375/cwt at $114.275. Feeders followed live cattle futures higher with the 10 and 20 day moving averages behaving similarly. As stated last week, cash producers have been aggressively marketing cattle. Friday's cattle on feed report was expected to show an on-feed inventory a little smaller than a year ago but didn't. Be very aware that there is far more downside risk than upside potential at this time. Conservative Feeder Cattle producers should still be short NOV '05 and JAN '06 futures to cover 4th and 1st quarter marketings.
LEAN HOGS on the DEC'05 Lean Hogs (LH) opened off $0.15 at $60.80/cwt on Tuesday. By the end of the day, the DEC'05LH was up $0.25/cwt to $61.20/cwt. The FEB'06LH was up $0.375 at $64.65/cwt. After a short run up, trading was relatively quiet after early fund selling weighed on the December contract. Technicals watching the 10 and 20 day moving averages for the FEB'06 saw an intersection of the trend lines last Wednesday, 10/19/05 at $65.535 signaling the prospect of a major price-trend change. That trend could be materializing this week. Support is now at $62.605/cwt. Firm cash pork prices on Monday limited losses. USDA on Monday reported the pork carcass cutout value was $63.90/cwt, up $0.10/cwt from Friday. The latest CME lean hog index was $63.02/cwt, down $0.91/cwt. Last week, traders were reminded by the cash market that production was running near record high levels. That is still the case this week. The market shows a cluster of sellers at $64.00/cwt. Last week, advice for hedgers was to be short in the FEB'06LH around the $63.00/cwt level protecting 1st quarter marketings. That target price is still valid.
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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.