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

LEAN HOGS on the CME closed up on Monday with the DEC’06LH finishing the day at $60.025/cwt, up $0.675/cwt. The FEB’07LH closed up $1.025/cwt at $63.025/cwt. The nearby contracts were supported by higher cash hog prices late last week, a higher CME cattle index, and chart-based buying. USDA’s Friday Cold Storage report was somewhat bearish but the markets rebounded on news of higher cash hogs and higher cattle futures. Ham and total pork stocks were well above market expectations. Lower corn prices were supportive. The latest CME lean hog index was down $0.230/cwt at $64.92/cwt.

The average pork plant margin for Monday was estimated at $4.80/head, up $1.70/head from Friday’s $3.10/head but down from $6.25/head one week ago, according to HedgersEdge.com. Cash sellers should continue to market hogs at correct weights not pushing them off the feeding floor too soon. Hedgers should be in short positions protecting 4th quarter and 1st quarter pork production. Corn users should consider pricing only the near-term inputs at this time while considering selling a put option.

CORN in Chicago on the Chicago Board of Trade (CBOT) finished higher a range of 3.4¢/bu- 6.2¢/bu with the DEC’06 futures contract closing at $3.182/bu, up 5.4¢/bu from the last close and 1.6¢/bu higher than last Monday. Corn futures were supported by bullish fund and local buying of December 2007 corn call options. Call buyers pay a premium for the right to buy futures at an underlying strike price so they hope the price of a commodity goes up. This activity is an indication that the market thinks that corn acres need to increase next year in order to meet demand. Many traders and analysts, this one included, think that feed grain stocks will fall to 30-year lows near the end of next year fueling demand for more acres of corn. Seasonal harvest pressure and reports that China is ready to renew corn exports pressured corn briefly in early trading.

China sold 2 million tonnes (78.7 million bu) to be delivered in January and/or February of 2007. In other export news, South Korea bought 165,000 tonnes (6.5 million bu) and Mexico bought 108,800 tonnes (4.3 million bu). Additionally, 27.6 million bu of corn, , below estimates for 42.0-48.0 million bu, were inspected for export. USDA placed the U.S. corn harvest progress at 53% complete vs. 41% complete last week compared to the 5-year harvest progress average of 57% complete by this time in the crop year. Cash basis bids for corn were steady to firm in the U.S. Midwest while opening bids were steady to 3¢/bu lower in the Mid-Atlantic States. As of last Tuesday, Friday’s CFTC Commitments of Traders report for futures and options combined showed funds in long positions increasing those positions by 13,234 lots to 315,028 contracts. Funds in short positions were placed at 52,407 lots, down 18,395. Producers should consider having up to 60% of the 2006 crop and 30% of the 2007 corn crop priced. Thinking that this corn crop may still come up shorter with ethanol demand increasing demand indicates that a buying a call option in corn futures at this time may still be a good idea.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday amid spillover technical buying. NOV’06 soybean futures closed up 11.0¢/bu at $6.174/bu. The NOV’07 soybean contract finished at $6.660/bu, up 8.0¢/bu. One CBOT trader stated, “Technically, we just started to run [up]. We have corn and wheat running and it just spilled over. All three were running on each other.” Cash bids for soybeans were firm to slightly weaker as processors acknowledge the large supply of soybeans and stocks begin to dwindle as harvest winds down.

Wet weather in some places slowed harvest pace. USDA placed the U.S. soybean harvest at 76% complete compared to the 5-year harvest pace of 78% and expectations of 77%-80% complete from traders. Pure speculative buying with little or no follow-through selling seems to be fueling this market amid outlooks for U.S. and global soybean stocks reaching all-time highs. U.S. weekly inspections were placed at 31.1 million bu, within range estimates for 25-35 million bu. Nearly half of those soybeans are destined for China. The CFTC Commitments of Traders report issued last Friday showed funds shifting to net long positions in futures and options combined during the week ended October 17. Weakness in beans amid worries of large stocks still overhangs the market. Cash sellers should consider holding present price levels until they have the beans harvested. Buying a call option may be good strategy.

WHEAT in Chicago (CBOT) finished the day up with DEC’06 futures closing at $5.170/bu, up 12.0¢/bu but 25.4¢/bu lower than last week at this time. JULY’07 wheat finished at 4.694/bu, up 3.4¢/bu, and 5.4¢/bu higher than last week. Buy-stops were tripped in thin trading as CBOT wheat rebounded from early declines on fund buying. Floor sources said the December/March spread was correcting after closing out of line on Friday. Bullish export news from Iraq and rallies in corn and soybeans added support. Iraq purchase expectations were said placed between 300,000 (11 million bu) – 600,000 (22 million bu) tonnes.

Bearish export reports surfaced when China reportedly sold 500,000 tonnes( 18.4 million bu). USDA placed export inspections at a disappointing 14.7 million bu, below range estimates of between 15-20 million bu. The DEC’06 wheat contract briefly dipped below its 14-day moving average of $5.00/bu, to a session low of $4.99/bu. Providing some support were reports that rain was needed in many parts of Australia to make the crop and may be too little too late for most of the crop there. Friday’s CFTC Commitments of Traders reports had funds increasing net long positions for the week ended October 17. Cash sellers with up to 80% of the ’06 crop sold are still in good shape. Buying a call option may still be considered at this time.

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