Weekly Purcell Agricultural Commodity Market Report

Mike Roberts
Commodity Marketing Agent
Virginia Tech

December 20, 2005

CORN on Monday at the Chicago Board of Trade (CBOT) roared in opening calls with contracts to the DEC’06 all opening strong.  By midday, most contracts were trading flat overall.  The MAR’06 futures closed up 1.2¢/bu at $2.086/bu.  The DEC’06 contract closed up 0.6¢/bu at $2.454/bu recovering 0.4¢/bu from last Monday.  Technical follow through buying from Friday lifted price early on.  The MAR’06 neared last week’s high at $2.10/bu but met resistance at $2.098/bu trading sideways.  Export numbers provided bullish news amid support from the soy complex.  Funds net short in large positions left the market open to short-covering ups and downs.  However, the extremely large U.S. corn supply held tightly in producer bins keep prices near four-year lows.  Midwest cash basis bids for corn were steady to higher on Monday with cash corn prices ranging from $1.79/bu to $2.30/bu in Virginia.  Nearby support for MAR’06 corn on the CBOT is at $2.10/bu while resistance is around $2.05/bu.  Corn in storage should be contracted to at least 75% - 85% of the crop.  The LDP was lower 1¢/bu at $0.19/bu.  Hedgers should consider the DEC’06 price now for protection up to 50%-60% of next year’s crop.

SOYBEANS in the nearby JAN’06 futures closed up 16.2¢/bu at $6.084/bu after opening up 10¢/bu at $6.020/bu and never looking back.  The NOV’06 was up 15¢/bu at $6.31/bu.  Deffereds were up 4¢/bu to 10¢/bu.  JAN’06 soybeans moved through its 100-day moving average of $5.986/bu.  News of dry weather with no rain in the forecast for the next several days in South American producing areas was supportive.  Strength in the Chinese soy complex provided price support amid speculation of better world feed demand as bird flu worries slacked off.  Funds were heavy long by midsession, sources said.  USDA weekly export inspections were on the low end of estimates.  CFTS’s Commitments of Traders report showed large speculators cut their net short position in both futures and options for CBOT soybeans last week.  Several floor sources said they expected to continue rolling January forward before the Dec. 30 notice day.  As with corn, Midwest basis bids for soybeans were mostly steady to lower early on Monday.  Cash bids for soybeans in Virginia ranged from $4.85/bu to $5.87/bu last Friday.  Bullish support provided by producers holding beans was still the order of the day on Monday.  There is not much more fundamental justification for price strength today … amid ever rising prices!  Go figure.  World market fundamentals still show a large downside opportunity to this market.  With the JAN’06 futures contract trading up past $6.05/bu and nearing the first delivery notice, cash marketers should seriously consider pricing the remaining 10% of the ’05 crop before the fund’s long positions are covered.  Hedgers are encouraged to considering being short NOV’06 futures up to 50% of the ’06 crop.

WHEAT futures on the CBOT for the MAR’06 closed up 3.4¢/bu at $3.232/bu with following months up 2.2¢/bu to 4.0¢/bu including the DEC’06 contract.  Technical buying was firm on a Relative Strength Index (RSI) of 51.48.  As with corn and soybeans, CFTC reports show the funds trimming their net short positions while remaining heavy on the short side leaving the market open to once-in-a-while short-covering rallies.  Rallies in soybeans held up prices as the Chicago gained on the Kansas City and Minneapolis markets.  Talk of cold weather in China’s wheat production areas also lent price support.  USDA export reports were within expected ranges.  Temperatures in the U.S. Plains were forecast to warm above normal levels by Friday.  There were no deliveries on the expired DEC’05 contract.  U.S. Midwest cash basis bids for soft red winter wheat were steady on Monday.  Cash wheat offers in Virginia ranged from $2.97/bu to $3.27/bu on Monday.  JULY’06 futures closed up 3.6¢/bu at $3.416/bu.  Cash marketers have long since sold the ’05 crop but might want to consider forward pricing 20% of the ’06 crop on the JULY’06 contract.   Hedgers have been stopped out of the market and should be patient for now.

LIVE CATTLE (LC) in Chicago closed lower on Monday amid light trading. Market participation is expected to taper off ahead of Christmas.  Both the DEC’05 live cattle (LC) and the FEB’06LC set new highs at $95.85/cwt and $97.25/cwt respectively over talk of higher cash prices this week.  The closing price for the DEC’05LC was up $0.25/cwt at $95.775/cwt while the FEB’06LC closed down $0.275/cwt at $96.800/cwt.  Cash cattle were active at $94/cwt to $95/cwt last week while $95/cwt to $96/cwt could be expected this week.  Beef plants are enjoying profitable margins amid tight supplies of market-ready cattle.  The strong cash market for live cattle supported December, while weaker deferred months were attributed to Friday’s USDA Cattle on Feed report showing more numbers coming to the packers next spring.  The monthly USDA report is expected to show double-digit increases in November placements versus a year ago.  Those cattle would be slaughtered next spring.  Efforts are being made to make sure U.S. beef gets back to Asia where many countries banned it two years ago due to a mad cow case in the U.S.  Some of those bans have been lifted and more open doors are being pursued.  USDA’s choice beef cutout on Monday was high at $160.84/cwt.  Live cattle feeders should consider short hedges in the FEB’06LC on 1st quarter marketings and the APR’06LC for 2nd quarter marketings.  As last week, the market is still ignoring USDA’s estimate of a 4% increase in beef production in the 1st quarter and an 8% increased beef production in the 2nd quarter of 2006. 

FEEDER CATTLE on the CME JAN’06FC were up $0.25/cwt at $114.575/cwt while the MAR’06FC closed up $0.225 at $114.075/cwt.  Feeder cattle closed mostly higher, with buying in the

nearby months prompted by their discount to the CME feeder cattle index.  The discount contracts to the CME cattle index provided some support in light trading.  Most of the strength in the market came from retail buying ahead of the holidays with some support from Japanese markets accepting U.S. beef.  Some January/March spreading was done by various firms.  Feedlots responded to higher offers with quick movement.  Prices may go even higher as showlists get depleted.  Cash sellers should continue to keep marketings and weights current while hedgers should consider short hedges in the MAR’06FC futures.

NOTE:  Due to the holidays, the next Purcell Marketing Report will be published on JANUARY 10, 2006.

Regards … Mike Roberts

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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.