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The Lean Hog Perspective

RSS By: Jeremy Knutson

This lean hog and feed commentary contains thoughts from Jeremy Knutson, a commodity broker with Hurley & Associates.

Hog & Corn Comments - 04-01-09 - A likely test of contract low's in June hogs tomorrow.

Apr 01, 2009

Hog Comments - 04-01-09 - A likely test of contract low's in June hogs tomorrow.


If you have questions, comments or suggestions, contact me at 1-877-212-2564 or email me at jknutson@hurleyandassociates.comTo read what I was thinking at the highs and lows of the market go to  www.leanhog.net to view my archived posts.

CORN - May '09 Electronic
Open - $4.01 1/2, High - $4.02 1/4, Low - $3.93, Close - $3.96 Down $.8 3/4.

Thoughts - Long Term (6 months) - Bullish/Higher

As a review from yesterday I said "I expect to see an early high and a late low tomorrow as enthusiasm expires over today's USDA report findings.  I look for early resistance tonight at $4.06-.07 then all the way up to $4.13 (don't think we will get there) and support should be $4.03, $3.99 3/4 and $3.96 1/2 but I think the $4.00 area should hold pretty good support.  ***IF MAY '09 OPENS ABOVE $4.06 TONIGHT THAT WILL BRING A MORE NEGATIVE TONE TO TOMORROW THAT WHAT I HAVE DISCUSSED.***  I don't think we will open above $4.06 but I wanted to point it out if it does so you know what to expect from the market." 

As stated above the enthusiasm from yesterday's acreage report seems to have run its course.  I thought the $4.00 area would provide good support but not so.  The crude oil market was down most of the day and the U.S. Dollar Index wasn't doing anything crazy so I attribute today's action to the corn market trading the corn market and nothing else.  The May '09 contract broke through the low side of my support point today but closed at $3.96 just 1/2 cent off the support level.  To no surprise it didn't reach my resistance level either because of the move we made yesterday. 

I exited some short $3.60 May '09 put options today (it was the short side of a put spread against long futures) for $.03 just to take them off of the books and leave my long $3.80 put in place to leave the downside open if the market decides to turn and head south (unlikely).  I am still in the camp of having good strategies in place to allow for upside participation in the market as I think we have a shot at testing $4.40 in the May '09 futures in the next 30 days.

Bottom line - Nothing happened today to make me think yesterday's rally was a fluke, as a matter of fact today's action was perfectly normal in my opinion.  We retraced 50% of yesterday's move and held that support level which suggests we could make another run at the most recent high of $4.06 in the near future.  I expect an early low and a late high tomorrow with support coming in at $3.93, $3.90 1/2 and resistance at $3.99 1/2, $4.01 and $4.06 and if we get excited $4.13 however I think it is unlikely for tomorrow. 

 

MEAL - May '09 Electronic
Open - $293.00, High - $298.30, Low - $291.80, Close - $294.30 Down $1.00
Thoughts - Long Term (6 months) - Bullish/Higher

I said yesterday "
the close on May '09 meal was a positive one today but like corn I think we may have gotten too excited to keep a strong rally like this going for two consecutive days.  I'm looking for a steady to better open tonight only to find resistance at $296.40 then $298.70.  Support should be around $293.20, $292.30 and $291.30.  I am looking for an early high and a late low tomorrow in May '09 meal."

My support and resistance levels were much better in meal today than they were in corn.  May '09 meal got within $.40 of my top resistance level and $.50 of my lowest support level.  Like corn, May '09 meal retraced near 50% of yesterday's day session move and bounced from there.  I still like the prospect of a higher meal market through time and want upside coverage in place as we move forward.  That being said I exited my long meal contracts today at $294.80ish and will look to re-enter the market at a lower level if possible otherwise I will have my stop above the market to get back long if I'm wrong.  I currently have a $280.00 May '09 put in place to protect downside risk on my futures (exited today) and that's what I will purchase against if the market gets to $284.00.  $284.00 is just above a gap that was left in the hourly chart yesterday and they are typically a target to go back and fill.

Bottom line - I am still bullish meal and soybeans but I am still looking for a tad more downside in the May '09 meal contract.  I expect an early low and a late high tomorrow with support coming in at $291.80, $288.1 and $285.50.  I see resistance at $295.90, $296.40 and $298.30.

 

HOGS - June '09 GLOBEX
Open - $71.95, High - $72.50, Low - $70.925, Close - $71.45 Down $.95
Thoughts - Long Term (6 months) - Friendly

Reviewing yesterday I said "The market held just above my $70.52 support number and traded .52 above my high end resistance number and closed above it for the day.  The issue I have with the market doing this today is its quarter/month end and strange things can happen on days like today.  I am not buying into today's trade action just yet, because there is no evidence of a stronger cash market and cutout dropped by $.99 today.  I look for an early high and a late low tomorrow with resistance at $72.725 then $73.20 and support should be at $71.45 and $70.675.  Cutout was down today which is in line with what the short-term charts show for tomorrow, a negative trade day.  Tomorrow is the cycle low but it is more of a general area it isn't a signal to buy so as I said yesterday I will continue to look for signs in the market that suggest the move lower is over."

Like I said it seems like funny things happen on the last day of the month and especially the quarter in some markets particularly the hog market.  Today confirmed that thought with June '09 giving back most of its gains from yesterday.  Cash hogs are still in the toilet and the prospects of higher prices don't look that great at the moment and cutout has shown us over the course of two days that product isn't moving that well either.  I remain hedged with upside potential to $80.00 in the June '09 contract.  I am looking for signs of a market bottom but they are not showing up we didn't buy into the head fake the market gave us yesterday.  

Bottom line - I'm looking for June '09 to continue lower tomorrow and I am expecting an early low AND high, I think the high and low of the day session will be during the first hour of trade tomorrow.  The cutout was down $1.69 (I wish it were an April Fool's joke!) today so I expect nerves of those that are long to be on high alert and just puke out of positions as we can easily make new contract lows tomorrow.  I am looking for a test of $69.52 tomorrow and I will need to see how we close tomorrow to decide if my cycle low this week is going to have any merit.  Support in June '09 hogs for tomorrow should be $70.675, $69.52 then limit lower at $68.45.  Resistance should be $71.52 and $71.70 but I don't think we will touch either of them, tomorrow could be ugly.

 

NW_LS500
Des Moines, IA     Wed, Apr 01, 2009     USDA Market News

USDA NATIONAL CARLOT PORK REPORT as of:  3:00 P.M.
Purchases equated to FOB Omaha Basis.

Compared to Tuesday's Close:        Fresh 1/4" trim loins firm;
butts steady to 1.00 lower; sknd hams 1.00 lower; sdls bellies 14-16 lbs 1.00
lower; lean trimmings not established. Trading mostly moderate, with moderate
demand and moderate to heavy offerings.



-----------------------------------------------------------------
Loads PORK CUTS          :            126.38
Loads TRIM/PROCESS PORK  :               1.0
-----------------------------------------------------------------

USDA ESTIMATED PORK CARCASS CUTOUT
Based on FOB Omaha carlot pork prices and industry yields.

           Calculations for a 200 lb Pork Carcass
        53-54% lean, 0.65"-0.80" backfat at last rib
-----------------------------------------------------------------------
         Total                   Today's Primal Cutout Values
Date     Loads      Carcass    Loin    Butt   Pic     Rib   Ham  Belly
-----------------------------------------------------------------------
04/01       127.4      55.00   66.26   62.59  39.61  98.36 36.39  74.90
Change :               -1.69   -4.46    0.03  -0.20   0.64 -1.97  -0.49
-----------------------------------------------------------------------

NW_LS831
Des Moines, IA     Wed, Apr 01, 2009     USDA-IA Dept of Ag Market News

National Direct Hog Price Comparison

--------------------------------------------------------------------------
                :  National   :    Iowa     :   Western   :   Eastern
                :             :  Minnesota  :  Cornbelt   :  Cornbelt
--------------------------------------------------------------------------
   Base Price is the price from which no discounts are subtracted and
   no premiums are added.
--------------------------------------------------------------------------
BARROWS & GILTS :   .31 lwr   :   .10 lwr   :   .54 lwr   :   .02 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 45.25-59.26 : 45.25-59.26 : 45.25-59.26 : 45.50-58.11
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    56.23    :    57.35    :    56.94    :    54.66
--------------------------------------------------------------------------
Head Count      :   24,765    :   11,167    :   16,568    :    7,827
==========================================================================

  

Hurley & Associates believes positions are unique to each person’s risk bearing ability; marketing strategy; and crop conditions, therefore we give no blanket recommendations. The risk of loss in trading commodities can be substantial, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. NFA Rules require us to advise you that past performance is not indicative of future results, and there is no guarantee that your trading experience will be similar to the past performance.


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