Weekly Purcell Agricultural Commodity Market Report Mike Roberts Agricultural and Applied Economics Virginia Tech

LEAN HOGS on the CME closed lower on Monday with the OCT’06LH futures off $1.30/cwt at $64.70/cwt. This is $2.30/cwt lower than last week at this time. The DEC’06LH contract finished down $1.775/cwt at $61.675/cwt. The DEC’06LH contract found some support from local profit taking on spreads but found new resistance in October/December and February/December spreading in late trading. The selling was prompted by weaker-than-expected cash hog markets and expectations of further weakness this week.

Hog supplies on meat shelves have grown due to a strong slaughter pace of heavy hogs. Some expansion of hog production can be explained in the hog/corn ratios calculated by Dow Jones using industry-accepted FOB cash hog and cattle prices from USDA and cash corn prices from private sources. Historically ratios at or above 20-1 for hogs (live basis) have resulted in expansion of production while a ratio of 15-1 or less have resulted in hog production contraction.

Packer margins are expected to show red in the near term as cash hogs traded steady to lower on Monday amid good packer demand following a strong slaughter pace. The average pork plant margin for Monday was estimated at $2.50/head, down $0.70/head from Friday and $3.45/head from last week at this time, according to HedgersEdge.com. The discount to futures to the cash markets were seen as limiting losses, floor sources were quoted as saying. Seasonally rising hog numbers and hog weights likely will provide resistance to upward price movement. USDA on Wednesday put pork carcass cutout at $72.39/cwt, off $0.32/cwt.

The latest CME lean hog index was placed at $70.24/cwt, down $0.08/cwt. Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users may still think about pricing a significant portion of corn supplies at this time as input prices may have established their lows. Try to catch the low bounce in this choppy corn market to price your corn if you haven’t already.

CORN on the CBOT finished up 6.0¢/bu with the DEC’06 futures contract closing at $2.476/bu. Deferred months were up a range of 4¢/bu-6¢/bu. The market was supported by concerns of too much moisture hampering harvest in the cornbelt combined with frost forecasts for the northwest slowing crop maturation while keeping spot cash markets steady to firm. Funds were active buying between 6,000 – 7,000 lots joining other speculators covering short positions in follow-through buying. The DEC’06 corn contract closed above its 20-day moving average on Friday.

Friday’s CFTC Commitments of Traders report showed funds slicing net long positions in CBOT corn futures by nearly 17% more than expected. On Monday, daytime electronic volume came in higher than the total traded in the pit. Over 57,000 electronic contracts were traded in spot December corn on Monday. USDA placed the amount of corn inspected for export last week at 44.981 million bu, within export range estimates of between 43-47 million bu. Spot corn in the U.S. Midwest early on Monday was mostly steady. In the Mid-Atlantic States cash corn was steady to 6¢/bu higher.

Producers may want to price another 10% of the 2006. This would have up to 50% of the 2006 crop forward priced. Consider keeping 20% of the 2007 corn crop priced. Stay on a wait-and-see approach to the ethanol demand factor. Storage may pay but might be somewhat difficult to find.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed 2¢/bu- 7¢/bu higher on Monday with the NOV’06 futures up 3.2¢/bu at $5.530/bu. This is 16.6¢/bu higher than this time last week. SEPT’07 futures was up the most closing at $6.09/bu, up 7¢/bu. The same wet-weather and frost concerns affecting corn had an impact on soybeans. As dry-down decreases early harvest spot cash markets remained firm because processors must pay a premium for beans as they attempt to replace their crush. Like corn, November soybean futures broke its 20-day moving average on both Friday and Monday.

However, gains were held in check by abundant stocks of soybeans. Funds bought over 3,000 contracts in follow through technical buying. USDA reports showed 10.8 million bu were inspected for export last week, lower than the expected 11-16 million bu. Cash beans in the Midwest were steady to firm while firm to higher in the Mid-Atlantic States. Friday’s CFTC Commitments of Traders report showed funds expanding net short positions in CBOT soybean futures in the week ended September 12. Cash sellers should have considered pricing up to 70%-80% of the ’06 crop. Prices are expected to remain lower in choppy trading. A put option considered last week is still a good idea.

WHEAT in Chicago (CBOT) finished the day up on strength from corn and soybean trading. The DEC’06 futures closed up 3.0¢/bu at $3.954/bu. This is 17.6¢/bu lower than this time last week but near the same levels of two weeks ago in this choppy, sideways pattern that seems to be narrowing. Volume was light due to the lack of fresh fundamental news. The market was subject to mixed emotions with the arrival of officials from Iraq bringing export optimism, India’s pronouncement that U.S. wheat would not be among this week’s tender from that country for import, and expectations that U.S. farmers will plant more winter wheat this fall. Dry conditions in Argentina and Australia were bullish background factors.

USDA placed weekly export inspections for the week ended September 12 at 18.4 million bu, higher than the 13-18 million bu that were expected. Funds bought 2,000 lots, floor sources said. Friday’s CFTC Commitments of Traders report showed funds slightly increasing net short positions in CBOT wheat futures/options combined to 747 contracts. For the week ended September 12, funds were net long 9.779 contracts, up 36 lots. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Hedgers may consider having 70% of the ’06 crop protected.

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