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

Weekly Roberts Report

LIVE CATTLE in Chicago (CME) closed higher on Monday in reaction to lower CBOT corn with the OCT’06LC at $89.350/cwt, up $1.675/cwt and the DEC’06LC up $1.625/cwt at $88.700/cwt. Cash cattle traded steady late on Friday at $88/cwt-$88.50/cwt. Active cash cattle sales on Friday helped allay concerns of record large feedlot supplies providing early support in prices. USDA on Friday reported feedlot cattle supplies as of October 1 were 11,385 million head, or 109% of one year ago. This is the largest ever for this date. However, the supply was in line with trade estimates and was factored in by the futures market. December/February and December/April spreading on Monday was prompted in part by lighter weight placements that will be sold as fat cattle in the coming months, floor sources said. USDA put the choice beef cutout at $148.17/cwt, up $1.21/cwt and the highest it’s been since September 12. The average beef plant margin for Monday was estimated at a negative $1.60/head, up $7.45/head from a negative $9.05/head last Friday, and up from a negative $41.25/head last week, according to HedgersEdge.com. Cash sellers are encouraged to sell cattle at proper weights without holding on for that extra ten pounds. Hedgers are off long positions but should still consider protecting a portion of 4th quarter ’06 and 1st quarter ’07 marketings. Corn users should consider pricing only the near-term inputs at this time while considering selling a put option.

FEEDER CATTLE at the CME closed up with OCT’06FC futures at $106.575/cwt, up $0.250/cwt. The NOV’06FC contract finished at $105.000/cwt, up $0.25/cwt. Feeders rose early in reaction to lower CBOT corn futures, the rally in live cattle futures, and a somewhat oversold condition. The 9-day Relative Strength Index was placed at 23. Anything under 30 is usually considered oversold unless an extraordinary supply/demand function is pressuring the market as we have been seeing in corn. Some selling happened later on when corn turned higher. The CME Feeder Cattle Index for October 18 was at $108.63, off $1.25/cwt, the lowest it’s been since June 8. Cash sellers are still encouraged to consider protecting a portion of 4th quarter ’06 and 1st quarter ’07 marketings at this point. 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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