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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 - 09-29-08 - The Govt, a day late and $700 billion short.

Sep 29, 2008

 

Hog Comments - 09-29-08 - The Govt, a day late and $700 billion short.

Jeremy Knutson
1-877-212-2564
jknutson@hurleyandassociates.com

CORN
I have to say I didn't expect this type of action today, if you don't believe me go back to my post from Friday, it should clarify things in a hurry.  I think I, along with many others were blind-sided by the House of Representatives this afternoon when they voted against the "bailout" plan.  I am not fundamentally for bailouts but I have to believe those with more information about the situation that we are using a "bailout" process because it is the lesser of two evils.  The other evil would be do nothing and let the market fend for itself.  Greed by few has gotten us into this mess and it is a dirty shame that everyone needs to pay for the mistakes of a minority our population.  

When I purchased my house I was presented the "opportunity" of having an interest only loan with the option of not even covering the interest payment with my monthly mortgage payment.  I said to the gentleman, so the worst case scenario is the interest rates go up, housing market crashes along with the stock market?  He answered yes that would be the worst case scenario but what are the odds.  I understood the concept but I didn't think it was very smart.  I didn't do business with that company and I went with a traditional loan at Wells Fargo who is one of the best banks out there today because they didn't get tangled up in all of this mess.  I wish I could say I saw this all coming but be a big liar, I just didn't think it was a wise situation to put me or my family into.

I suppose I should be talking about corn here, like I said I didn't see this coming.  I expected a bailout package to be voted on over the weekend much less today.  I also took the politicians for their word when they said there would be a package passed, oops, I guess I shouldn't have done that.  I really don't have a good answer for what I think will happen because it is all trumped by what happens in Washington and Wall Street as far as I am concerned.  You tell me what happens there and then I will have a better idea.  I wouldn't mind going back to having a market that eventually trades fundamentals and is industry specific when it trades versus the corn market taking its direction from outside influences. If we close the market below $5.04 1/2 we could see a test of $4.84 and then down to $4.37, I don't expect this unless we see no action from the Government and Wall Street continues its decline, it should then drag commodities down with it.

Bottom line - I didn't give much information as to direction above because I honestly don't know.  I still think we are in a great area and have a great opportunity in front of us to cover feed needs for an extended period of time.  I sounds stupid to even say this but tonights open was actually friendly (at least under normal conditions) and would warrent buying at $5.13 1/2 on a stop.  I still think ownership is needed at these levels and there is no better time than now to use options!  Under normal conditions I would say I expect the market to be higher tomorrow with the open we had tonight but we have other forces driving price right now.  We have the USDA out tomorrow morning with the Quarterly Stocks report at 7:30 AM CST.


MEAL
Dec '08 meal closed just above $300.00 today and is currently trading below $300 in the overnight session.  There is good volume in the overnight market thus far and there is a technical buy at $297.50 stop in the Dec '08 meal contract.  This isn't a recommendation because who knows what will happen with the Government as I mentioned above.  I would strongly recommend having coverage in place to the upside via options because early yields continue to come in less than expected which could give the soybean and meal market a spark when the market decides to trade fundamentals again.

Bottom line - like corn the open tonight would be positive under normal circumstances but we are far from that.  I have what would be a couple buy signals in Dec '08 meal for tonight/tomorrow from a technical perspective, one at $297.50 and also at $301.20, both as buy stops.  I would say be cautious in here but still make sure you have protection in place for meal!!!!


HOGS
Dec '08 hogs opened about $1.05 lower today and they also close around that level.  If today would have been a normal day I think hogs could have traded higher on the day but with the House not passing the bailout package everything got nailed.  Hogs were probably the strongest commodity in the Ag sector today.  I haven't changed my opinion of hogs since last Friday, I think the report was what we needed to find a bottom in this market, from a futures perspective.  We need to stay above our most recent low of $64.22 for me to stay with my thoughts of better prices in the near future.  When I talk about better prices I am speaking only for futures at this point, I don't have a firm opinion on cash right now.  I can't seem to get any good direction.

Bottom line - in a normal setting I would expect hogs to trade better tomorrow but as you can probably tell from my comments that I am walking around with my hands up in the air right now wondering what is next?  What can we be surprised with now?  I will go with my technical thoughts of better prices for tomorrow but I am not counting on it.  If you are short the market via hedges I think it is a great time to purchase call options against your short positions to give you upside potential in the market as well as protect any equity that you may have gained on the way down.

 

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
-----------------------------------------------------------------------
09/29        47.4      74.32   89.57   74.06  54.61  87.34 72.62  83.23
Change :                0.09    0.57   -0.27  -1.62  -0.48  0.63    unc
-----------------------------------------------------------------------

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 :  1.02 lwr   :  1.24 lwr   :  1.02 lwr   :   .31 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 60.00-73.92 : 63.00-73.20 : 60.00-73.92 : 61.00-72.30
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    69.76    :    70.80    :    70.88    :    68.52
--------------------------------------------------------------------------
Head Count      :   25,229    :    9,870    :   12,959    :   12,032
==========================================================================

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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