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NO COMMENTS WEDNESDAY THRU FRIDAY OF THIS WEEK AS I WILL BE ATTENDING A CONFERENCE.
CORN – Dec ‘09 Electronic
Open – $3.18 1/4, High – $3.20, Low – $3.15 1/4, Close – $3.17 3/4 Down $.02
Thoughts – Long Term (into December ‘09) – Sideways/Lower
Thursday I said: "Tomorrow is the USDA crop production report released at 7:30 a.m. CST which should provide some direction to the market. We had a private analyst group (yesterday actually) suggest much lower yields for this year's crop which provided some profit-taking support. I don't know if this analyst group was factoring in an early frost or if it was their projection of a normal harvest. The group projects a national yield of 153.8 vs. the USDA yield of 159.5 from last month (I believe the trade is well into the 160's with their thinking, me included).
Assuming the projections are accurate the corn production would drop from the USDA projected number of 12.761 billion bushels to the analyst's projection of 12.123 which would provide a 640 million bushel drop in production. If accurate this would be a significant change in fundamentals and send corn much higher than current levels, say back toward $4.00+ in my opinion.
Currently we own October $3.20 call options for upside coverage on a large portion of feed corn needs. We will monitor our position after the report tomorrow to see if it needs to be adjusted but I don't foresee the report being that bullish tomorrow (until the USDA reads this and says AH-HA, we'll show him!). There is no doubt our crop is behind this year and it will be interesting to see if the trade takes on one more crop scare rally which could very well be underway.
I am still of the opinion we move lower over time but we need to make sure we are covered with feed corn needs thus our call option positions in case I'm wrong. If we get a crop scare before harvest I would expect $3.40 Dec '09 corn to provide some good resistance at this time. I believe today's rally had more to do with profit-taking before a report than it did with anything else.”
Dec ‘09: The market started weak today by making the day session low within the first 45 minutes of trade and then sat there most of the day. My opinion hasn't changed much from my last post which is bearish until proven otherwise. Corn is still in a profit-taking rally as far as I'm concerned because funds are still selling this market and we have been rallying on declining volume. $3.20 3/4 should provide resistance for now as that would get us 62% of the way back to the high of Aug 28th.
It doesn't feel like the trade is getting all that excited about the prospect of an early wide spread frost, it seems logical that there will be places affected by an early frost and some yield will be lost but not on a large enough geographic area. It feels like we may just trade around here while the market looks for news to support longer-term direction. My opinion is lower for now until we get into December, however, this opinion could change with a widespread frost. We still have coverage in place to protect against higher prices and will continue to have for the time being.
Bottom line: I am looking for the market to experience an early low tomorrow.
Dec ‘09 Corn – Support/Resistance for 09-15-09
(R3) Resistance 3: $3.27
(R2) Resistance 2: $3.22 1/2
(R1) Resistance 1: $3.20
Today’s close: $3.17 3/4
(S1) Support 1: $3.15 1/4
(S2) Support 2: $3.12 3/4
(S3) Support 3: $3.08 1/4
MEAL – Oct ‘09 Electronic
Open – $281.90, High – $284.00, Low – $278.00, Close – $283.30 Up $2.80
Thoughts – Long Term (into November ‘09) – Sideways/Lower
Thursday I said: “We still haven't done much to get me excited about meal yet other than the nearby cash price, OUCH! Today's close allows me to further my thought of a $281.50 test unless we get some crazy numbers from the Government tomorrow. I will continue to look for a day that we close above a prior day high and then look to roll down our out of the money call options. If the $281.50 area doesn't hold then we could see prices drop to the $270.00 area before finding more support. The USDA report should give us some direction tomorrow.”
Oct ‘09 meal: The key number of $281.50 I've been talking about for the past week or so has finally been touched. I said a test of $281.50 was likely but I also thought it would hold support for now and thus far that is true. I am getting to the point where I think meal may have done enough to the downside for now and is due for a correction to the upside. I to a point where I am comfortable moving our call positions lower as the market begins to search for higher prices.
I don't have a specific strategy in mind at this time but will be working on entering one over the coming days. The Oct '09 contract closed below $281.50 on Friday but managed to get right back above it today which is a friendly factor.
Bottom line: I’m looking for the market to experience an early low and late high tomorrow.
Oct ‘09 Meal – Support/Resistance for 09-15-09
(R3) Resistance 3: $293.70
(R2) Resistance 2: $287.70
(R1) Resistance 1: $285.50
Today’s close: $283.30
(S1) Support 1: $279.50
(S2) Support 2: $275.70
(S3) Support 3: $269.70
HOGS – Dec ‘09 GLOBEX
Open – $49.50, High – $49.55, Low – $48.325, Close – $49.00 Down $.825
Thoughts – Long Term (into December) – Negative
Thursday I said: “Again I shake my head. It was a very interesting day in the Dec '09 contract today as we made a high of $52.225 and then closed at $50.70. The chart shows this as a potential spike high for the Dec '09 contract. We have the Goldman roll to contend with this week which on its own will create additional volume but today was a very high volume day for the Oct and Dec '09 contracts and when you couple the type of trade we had today and the volume it is typical of a top. If today's high is taken out and closed above then look out we could move higher fast and touch $54.275 in a quick hurry but I don't think the likely-hood of that happening is very great.
Having said all of that, I have been made to look like a fool the last week or so with my thinking that this was/is a profit-taking rally and the sad part is I still think so! I REALLY think this is a great opportunity to extend any protection that needs to be placed in the Dec '09 contract via a known risk option strategy. We are hedged in the Dec '09 contract and we had a $46/52 call spreads in the Oct '09 contract to give us some upside. Today the top end of our protection was met so we adjusted our position into the Dec '09 contract buying a $52/58 call spread and selling a $42 put for a little less than $1.50 cwt.
This position still gives us the downside protection we need and allows us upside to $58.00 in the Dec '09 contract. We will need to manage the short $42.00 put options because if the market moves below $42.00 in the Dec '09 we would be long at $42 which effectively would offset our hedges. The reason for selling the out of the money call and put is to help pay for the $52.00 call we purchased. If we would have purchased the $52.00 call outright it would have cost us near $3.50 cwt to do so and that's too much.
Again, at the risk of having egg all over my face I am of the opinion we are near a short-term top in the Dec '09 contract. If you NEED to get protection on now is an excellent time to do so with an option strategy so talk to your broker to discuss what is right for your operation. If you don't have a broker or are unhappy with the relationship you have with your current broker send us an email at firstname.lastname@example.org and we will be happy to discuss your operation and what is best for you."
Dec ‘09 hogs: So far the comments I last posted have been accurate from the perspective of a spike high in the Dec '09 contract. The Dec '09 was lower today and looks like it should start weak again tomorrow based on the way we closed the day. The U.S. and China have gotten into a bit of a trade spat since President Obama announced a 35% tariff on Chinese tires which triggered the Chinese to say they will retaliate by taking action against U.S. automobiles and chicken imports.
This is just what the hog market needs, more meat domestically! This Chinese story was some of the news that was floating around today along with cash bids coming in weaker during the noon report. Cutout at noon was un-established but ended the day by coming in $2.59 higher taking back all of the losses and then some from Friday's move lower. The market rallied $.30 after the cutout was released but it wasn't a mad rush to buy futures so I'm not sure the cutout number is going to have a tremendous reaction from the Dec '09 contract.
Today was the end of the Goldman roll which was selling the October and buying the December. The "roll" has been taking place since last Tuesday and completely throws the market out of a logical rhythm in my opinion. I would expect the December to start losing ground to the October contract as we move forward in time based on the seasonal tendencies of this spread relationship to invert (Oct higher than Dec) during this time-frame. I am still of the opinion that this is a good time to enter into a known risk strategy for hedges that are placed in the Dec '09 contract!
I would think we should see some early speculator money come into the market based off of the cutout being $2.59 higher tonight but I don't think it will last nor do I think we will have a runaway market to the upside tomorrow.
Bottom line: I’m looking for the market to make an early low tomorrow then strengthen as the day progresses.
Dec ‘09 Hogs – Support/Resistance for 09-15-09
(R3) Resistance 3: $51.35
(R2) Resistance 2: $50.125
(R1) Resistance 1: $49.475
Today’s close: $49.00
(S1) Support 1: $48.25
(S2) Support 2: $47.675
(S3) Support 3: $46.45
(S4) Support 4: N/A
(S5) Support 5: N/A
(S6) Support 5: N/A
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