Weekly Purcell Agricultural Commodity Market Report

Mike Roberts
Commodity Marketing Agent
Virginia Tech

January 31, 2006

CORN on Monday at the Chicago Board of Trade (CBOT) opened firm before moving to new one-month highs with help from the soybean complex. However, the absence of bullish momentum near the highs allowed mild profit taking.  The 14 day RSI on the MAR’06 futures at 59.18 and the DEC’06 corn contract at 62.55 restrained prices.  The Relative Strength Index (RSI) indicates a market is overbought at 70 or greater and oversold at or below a value of 30.  Corn futures on the MAR’06 closed down 1¢/bu at $2.176/bu while the DEC’06 corn futures closed down 0.4¢/bu at $2.536/bu.  Exports were quite overnight after demand last for corn was fast paced amid a large world supply of feed grains.  USDA said early Monday that 36.1 million bushels of corn were inspected for export last week.  This was above estimates of between 29 and 35 million export bushels.  Hot weather worries in Argentina stirred speculation of stressed crops as the crop there is now in the key developmental stage of pollination.  If hot conditions persist, production will be negatively affected in this important kernel-filling stage.  Weather forecasters are predicting hot, dry weather through next weekend in Argentina while calling for moisture relief in Brazil.  Cash bids Monday were mostly lower for corn in the Midwest after last week’s higher bid offers sparked farmer selling.  Friday’s CFTS Commitments of Traders report for futures and options showed the aggregate for large bull funds was down 1,344 contracts from the previous week at 148,403 lots.  The bears were up 27,390 at 154,316 lots.  Chart resistance on the MAR’06 corn futures was up 10¢-11¢/bu from last week at $2.22/bu.  Key technical support for the DEC’06 corn contract is placed at $2.52/bu.  Both cash sellers and hedgers should hold with last week’s considerations of forward pricing the ’06 cash crop at 35% … and for the hedgers, be short on 50% of the ’06 crop.

SOYBEAN futures on the CBOT were up from 8.4¢/bu to 11.4¢/bu near closing on Monday.  The MAR’06 bean contract closed 9.4¢/bu up at $5.986/bu with the NOV’06 futures finishing the day at $6.306/bu, up 9.6¢/bu.  The largest gainer was the AUG’06 bean contract closing up 11.4¢/bu at $6.24/bu.  Hot, dry weather expected over the next 5 days in Argentina’s soybean growing areas propelled price upward through the gaps discussed in last week’s report.  This movement obliterated the notion that the market may be approaching a downward measuring gap.  The NOV’06 gap of 1/12/06 was filled on 1/25, tested again on 1/26, then completely offset with an up-gap move on 1/27.  Another up-gap move on the NOV’06 was charted Monday, 1/30.  The 14 day RSI on the NOV’06 bean contract registered a healthy bull-market 49.48 by the end of the day.  Everything looks bullish … except those pesky ending stocks that are so very large.  If dry conditions remain, the market may test price to see if these ending stocks could be reduced in light of growing worldwide demand.  Is the market telling us that it does not trust there is enough supply to meet demand?  Commercial hedging pressured price after the MAR’06 contract spiked 14.2¢/bu for a short time to $6.034/bu before quickly retreating after a run up in soymeal.  Exports were disappointingly below the USDA report of 19-27 millions bushels at 18.9 million bushels.  Midwest cash basis bids for beans were weaker on Monday after higher cash price opportunities triggered farmer selling.  CFTC data on Friday for futures and options showed large funds short CBOT beans as of January 24.  Chart resistance for the MAR’06 bean contract is now between $5.99 & $6.10/bu with chart resistance for the NOV’06 contract at $6.24 - $6.33/bu.  Cash sellers should think about keeping no more than 20-25% of the ’06 crop forward contracted.  Hedgers should consider staying with 45% of the crop in short hedges.  You could also consider buying an out of the money call on the NOV’06 in case prices rise.

WHEAT futures in Kansas City at the KCBT ended 4.5¢/bu higher at $3.983/bu with the MAY’06 KCBT contract closing up 3¢/bu at $4.015/bu.  Strength in the CBOT soybean complex supported wheat price up but most of the lift were a result of hopes that U.S. wheat sales to Iraq would become a reality after a  tendered offer for 1 million tonnes (37+ million bushels) on Saturday.  Wednesday should show the results of the offer.  With no significant moisture in the forecast, drought remained fundamental price support as the condition of the new crop declines each day.  In addition, the wheat crop in Russia is now trouble due to extremely cold weather.  Export provided additional price support as USDA reported 23.4 million bushels were inspected.  This was 7 million more bushels than expected.  By the end of Monday’s trading on the CBOT, the 9 day RSI for the MAR’06 contract was near the overbought number of 70 at 69.  The funds showed a bearish move down 333 lots to 44,467 lots.  Short funds were up 262 lots at 3,128.  Cash bids for U.S. wheat fell 5¢/bu late Monday after global sources reported Argentina will likely harvest 12 million metric tons of wheat in the ’06 crop.  The forecast is higher-than-expected for key Argentine wheat producing areas.  However, Argentine wheat export levels fell 55% for December.  This was the 7 month in a row exports were down in that country.  Traders said sales were down largely due to heavy buying when clients loaded up on wheat early last year amid a record South American wheat crop.  The KCBT/CBOT spread on the MAR ’06 contract was up 2.7¢/bu at 53¢/bu, premium KCBT.  Kansas City spot cash bids for 11% - 13% protein fell from 4 – 6¢/bu while bids for 14% protein were unchanged.  Farmer sales limited gains with cash bids lower to steady.  Primary chart resistance on the JLY’06 wheat contact at the CBOT is at $3.698/bu with secondary resistance at $3.762/bu.  Prices may eventually challenge the $3.8301/bu high but that may be somewhat optimistic.  With that in mind and the ’05 crop long gone, cash sellers should have no more than 30% of the ’06 crop forward contracted at this time.  As short hedgers are now out of the market, it will pay to be vigilant for short opportunities in JULY’06 futures at the $3.78 - $380/bu price level.

LIVE CATTLE futures closed lower on Monday with the FEB’06 live cattle (LC) contract down $0.65/cwt at $93.25/cwt and the APR’06LC off $0.625/cwt at $91.15/cwt.  The market slide resulted from pressure amid fund liquidation and weak cash markets setting 10-week lows.  This is the first close below the 100 day moving average in a long time.  Some late short covering lifted the market from session lows amid technical signs that price should go lower as fund selling kept the pressure on.  The 9-day RSI on the APR’06LC contract showed oversold tendencies going below 30 at times.  Anything under 30 is considered oversold.  There was also concern over the cash market as feedlot showlists were up with fed prices lower and the choice boxed beef market falling to its lowest level in 2 months.  Cash cattle traded mostly $2/cwt lower at $95/cwt on Friday with USDA reporting choice boxed beef down $1.94/cwt by noon on Monday at $152.18/cwt.  Beef packer cutout margins on Monday were down from a negative $16.15/cwt to a negative $58.40/cwt.  According to HedgersEdge.com, last week’s cutout margin was placed at a negative $49.30/cwt a week ago.  This is the lowest level since December 5.  There is some concern that packers will likely pull back further on cash bids amid their already high cutout margins in the red.  The market appears as though both live cattle and feeders have reached an important top as the Japanese beef ban continues amid fear of disease, contract follow through continues, and uncertain export sales are confirmed.  Live cattle feeders should consider maintaining short hedges in the FEB’06LC on 1st quarter marketings and the APR’06LC for 2nd quarter marketings.

FEEDER CATTLE on the CME MAR’06FC closed down $0.875/cwt at $109.75/cwt on Monday.  The APR’06 and MAY’06 both closed down $0.975/cwt and $0.825/cwt at $110.50/cwt and $111.15/cwt respectively.  Feeder cattle futures finished lower amid chart-based selling with the MAR’06 contract reaching a 13 week low and, like live cattle, finished the day under the 100-day average.  The APR’06 established a two-month low, trading sources said.  USDA’s recent Cattle Inventory report showed the market has it factored in as it had little effect on the market.  The USDA report is considered bearish to distant months by traders as herd expansion is expected deep into 2006.  Feeders followed live cattle lower with recent gains in corn prices adding to selling interest in an already bearish market.  However, late short covering lifted futures at the end of the day as fund selling pulled on price most of the day.  The latest CME feeder cattle index for Jan. 27 was down $0.43/cwt at $112.94/cwt.   Feeder sellers should be short in the MAR’06FC on a significant portion of 1st quarter sales and consider short hedges now in the APR’06 and MAY’06 protecting 2nd quarter marketings.  As with live cattle, the nearby months signal a major top has been reached.

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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 or (804) 733-2686.