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CORN – Dec ‘09 Electronic
Open – $3.28 1/4, High – $3.29, Low – $3.16 1/2, Close – $3.19 1/4 Down $.10 1/2
Thoughts – Long Term (into December ‘09) – Sideways/Lower
Thursday I said: “Corn is having a tough time making up its mind on direction the last two days. My opinion remains the same, as each day passes without the major threat of an early frost the farther this corn market has to fall. I am expecting another move toward the contract low of $3.11 1/2 in the near future but the market has been a tough one to break. Today’s action shows me there is confusion and a relatively good balance in price for the time being. We have developed a range of $3.45 to $3.11 1/2 and whichever direction it breaks out of the market will surely move in that direction for a couple of session (my opinion). We still have upside coverage in place and as a risk management move today we exited some short $3.90 call options for $.05 that we originally sold for $.14 1/2 as a part of an option strategy. By doing this it opens our upside wide open if the market rallies big which I don’t expect. Now that I say I don’t expect a rally you might ask why I bought those $3.90 puts back. Experience has taught me not be greedy because the market has a paddle big enough to spank anyone!
I am not bullish corn at this point, if the market moves higher I believe it is on the coattails of an early frost forecast which is usually more hype than harm. I don’t believe higher prices are sustainable for any great length of time until something changes fundamentally. Our wild card risk is the USDA throwing its signature pitch, a curve ball and significantly changing the numbers on our balance sheet. If you need ownership of corn I suggest you do it with a known risk option strategy but more importantly talk to your broker about what is right for you and your operation. If you don’t have a broker and would like to visit about a position give us a call at 1-877-212-2564.”
Dec ‘09: Dec corn has been treading water for the last week or more and not giving any good indication to direction. As I’ve mentioned before I am not bullish corn given the state of the crop and the only thing that I see changing that is an early frost. The longer-term forecasts have moved some heat back into the system and some private forecasters are saying the chance of an early frost that would hurt corn is minimal.
We have plenty of corn to go around and I think there will be a test of the $3.11 1/2 at some point in the near future. We are currently delta neutral in corn but do have some underlying options positions in place to give us upside if needed.
Bottom line: I am looking for the market to experience an early high low tomorrow.
Dec ‘09 Corn – Support/Resistance for 09-02-09
(R3) Resistance 3: $3.46 1/2
(R2) Resistance 2: $3.34 1/2
(R1) Resistance 1: $3.26 3/4
Today’s close: $3.19 1/4
(S1) Support 1: $3.14 1/4
(S2) Support 2: $3.09 1/4
(S3) Support 3: $2.96 1/2
MEAL – Oct ‘09 Electronic
Open – $308.80, High – $311.40, Low – $295.50, Close – $296.70 Down $12.10
Thoughts – Long Term (into November ‘09) – Sideways/Lower
Thursday I said: “The Oct ‘09 contract is still taking a break from the upside and similar to corn if the weather continues to be okay without any major threat of an early frost I think the Oct ‘09 contract is due for a correction back to the $294.30 to $298.20 area to try and find some support. I still want ownership of meal through a known risk strategy but for now we remain on the sidelines in this market with no positions in place. I will continue to monitor this chart closely and if we can get a move lower we will put some coverage in place or if the market closes above $325.00 for two consecutive days then we will look to add coverage but until then we are on the sidelines.As I mentioned yesterday there is still the wedge forming in the weekly chart which would suggest a breakout move is pending but we don’t know to which direction and only time will tell.”
Oct ‘09 meal: The Oct ‘09 contract moved low enough to test the window of support that I spoke of last week (see above) and should continue to test this area tomorrow. It looks like the market should provide an early low tomorrow and retrace some of today’s losses. If we close below $297.00 again tomorrow then I am looking for the $281.50 area to be tested in a relatively short amount of time. I purchased a call spread on Friday of last week to get us through the weekend and any potential changes in the forecast as it pertains to frost and the forecast looks fine for now.
We will keep the call spread in place and buy back the sold call if it gets to a price that makes sense to do so. I am still not bullish soybean meal but we are still in the wedge formation that continues to form on the weekly chart. We will continue to monitor this pattern as we move forward.
Bottom line: I’m looking for the market to experience an early high and late low tomorrow.
Oct ‘09 Meal – Support/Resistance for 09-02-09
(R3) Resistance 3: $317.10
(R2) Resistance 2: $306.90
(R1) Resistance 1: $301.20
Today’s close: $296.70
(S1) Support 1: $291.00
(S2) Support 2: $285.30
(S3) Support 3: $269.40
HOGS – Oct ‘09 GLOBEX
Open – $48.125, High – $49.80, Low – $48.025, Close – $49.50 Up $1.35
Thoughts – Long Term (into December) – Negative
Thursday I said: “Oct ‘09 hogs continue to shower us with negative setups and sell signals but the market remains firm and unwilling to break from these levels. We moved all of our short October hedges into the December today as my research shows December is a better sell and hold month than October is after September 2nd. In my experience the October/December spread is one of the most violent when it comes to movement near the leading month’s expiration. You either partake in the spread invert (typically invert that is) or you miss it by a mile so it seems. I remain negative on Oct ‘09 hogs until we have two consecutive closes above $49.00. The cash market was slightly firmer throughout the day today but nothing significant and the noon cutout report gave us nothing to hang our hat on either as it suggested steady trade. October has give me the following signals this week, Monday – sell signal at $48.00, Tuesday – issued a warning signal of a possible reversal, Wednesday – sell signal at $48.75, today there was another bearish formation that gives no signal other than caution if you are long. So, I look at this and say bearish but why are we continuing to remain firm? I don’t know.
Cutout was up $2.52 today on 48 loads so volume wasn’t spectacular it looks more par for the course than anything. The hourly charts suggest the market to firm as the day progresses tomorrow in the Oct ‘09 contract with major resistance at $49.00. Ham’s and Ribs are the cuts that have rallied the most in the past two weeks and hams alone have rallied $23.86 since Aug 12th, 2009. Some of the recent gains in product may be attributed to the upcoming Labor Day holiday. If we can continue this pace and incorporate other cuts into the mix after Labor Day then we may have something to get excited about but until then keep our rain coats on; it’s stopped pouring but it sure as heck is still raining.“
Oct ‘09 hogs: The market doesn’t want to move lower at this time and it surprises me to a degree because of the time of year. Volume the has been decreasing since August 19th which is when the October contract started to rally. If the market is moving higher you would like to see the volume increase as well but it hasn’t. The Oct is also in overbought territory which is the first time it has been overbought since July 17th when the market last peaked before the most recent downturn.
October has now closed above the $49.00 for the first time and I would like to see it happen again tomorrow before I change my opinion of the October contract to slightly friendly. The sad part of it all is that I can’t find good news to support higher prices other than we’ve enjoyed some higher cash bids recently but we also have to consider Labor Day weekend as a probable part of the recent gains in the cash market. Packers are still making good money and killing a lot of pigs so it will be interesting to see if we can keep this pace after Labor Day.
I just looked at the pork cutout number after writing all of the above statements and I don’t have much more to add. Cutout was down $3.11 on 106 loads today and the cash market was nearly $2.00 higher. This should pretty much erase most of the packers margins if the cutout number is true.
Bottom line: I’m looking for the market to make an early high tomorrow then weaken as the day progresses.
Oct ‘09 Hogs – Support/Resistance for 09-02-09
(R3) Resistance 3: $51.95
(R2) Resistance 2: $50.80
(R1) Resistance 1: $50.05
Today’s close: $49.50
(S1) Support 1: $49.05
(S2) Support 2: $48.25
(S3) Support 3: $47.25
(S4) Support 4: $45.50
(S5) Support 5: $39.65
(S6) Support 5: $35.275
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