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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 - 10-22-08 - Help, we've fallen and we can't get up!

Oct 22, 2008

Hog Comments - 10-22-08 - Help, we've fallen and we can't get up!


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

Greetings from SNOWY Brookings, SD.  Yes, I said snow!


CORN
Dec '08 corn took no prisoners today as it was weak right out of the gate and remained that way for the balance of the day.  The first hour trade was negative which suggested the market should close below the opening price which it did.  I said yesterday that I thought we would open slightly higher last night and then sell off which was true.  I also said I thought we would test yesterday's low of $4.06 1/2 which happened overnight.
 
I look at the way the market traded today and see we closed below the $4.07 number I talked about yesterday.  If we don't close above at minimum $4.00 tomorrow then I would say we have a good shot at testing the low of $3.71.  It feels like the market will open lower tonight and follow through lower for awhile and then firm some.  The Dow Jones dropped another 150 points going into its close from where it was trading at 1:15 p.m. cst. when grains closed.  Oil held steady.
 
Bottom line - I think Dec '08 will open lower tonight and continue lower for awhile and then find some support around $3.81 to $3.71.  I don't think we will challenge $3.71 tonight or tomorrow UNLESS the Dow Jones is negative again.  The resistance level for tomorrow is $3.87 1/2 to $3.89 1/2.  If the Dow Jones is steady tomorrow I think we could challenge todays high of $3.91.  Watch the Dow Jones in the morning for Dec '08 corn direction.

 
MEAL
Dec '08 meal continues to give me reason to believe that when the rest of the markets are done selling off, meal will have a good rebound.  I said last night I thought we would test the $267- 268 area but only managed to get to $266.50.  I also said I expected the Dec '08 contract to be firm today which it actually was compared to corn and soybeans.
 
Bottom line - Dec '08 meal closed above $254.50 which is the 50% retracement back to the low of $236.90 we had last week.  I expect tonight to open lower and trade lower for a short while before finding some support around $254.50 again.  Again, I expect Dec '08 meal to be firm tomorrow; a close above $254.50 would keep the upside target at $272.10 but if we close below then it would be $250.30 and then all the way down to $236.90.
 
HOGS
Dec '08 hogs opened weaker this morning and traded weaker for a good portion of the morning.  I still don't understand why the Dec '08 contract is so firm considering the cash market is still nothing to write home about.  Cutout had its second day in a row of higher values closing $.59 higher this afternoon but the U.S. Dollar Index is still on a mission and was up approximately 140 points today, again!
 
Dec '08 still looks like it should be weak and I am going with the weaker call again for tomorrow.  I would expect a higher opening tonight and probably trade better for most of the overnight session just because of the lack of volume.  I don't expect Dec '08 to be a lot higher tomorrow but if it is I think $58.30 will provide some good resistance.
 
Bottom line - I expect Dec '08 to have early highs tomorrow and late lows.  $56.85 is an area of support that I think we could visit tomorrow and I don't believe cash will be all that strong yet to revive the Dec '08 contract.  I am going with a weaker tone tomorrow for hogs.
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
-----------------------------------------------------------------------
10/22        81.8      65.94   89.64   67.97  42.58  94.31 52.26  73.79
Change :                0.59   -0.45   -0.93   0.60   1.16  2.80  -0.06
-----------------------------------------------------------------------
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 :   .73 lwr   :   .01 lwr   :   .10 lwr   :   .53 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 50.75-61.00 : 52.00-61.00 : 52.00-61.00 : 50.75-58.78
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    56.94    :    58.81    :    58.67    :    54.04
--------------------------------------------------------------------------
Head Count      :   26,632    :   13,011    :   16,667    :    9,965
==========================================================================
 
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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