Hog & Corn Comments - 10/01/09 Cutout up $2.05? Hogs close below trendline.
Oct 01, 2009
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CORN – Dec ‘09 Electronic
Open – $3.41 1/4, High – $3.46, Low – $3.37 1/2, Close – $3.40 1/2 Down $.03 1/2
Thoughts – Long Term (into December ‘09) – Sideways
09/30/09 I said: "The Quarterly Stocks report put out by the USDA had a slight reduction in carryout compared to the average trade analyst guess which provided some support today. I am still of the same opinion that we have a rather large crop waiting to be harvested but until it is in the bin we can only wonder what's out there. The trade is also adding some small premium for the weather forecast being wet and having the potential to hinder harvest. I don't believe much has been factored in other than it is supporting the market at current levels.
We remain long via a call spread to protect against higher prices and to complete the crush on hogs. I am skeptical of how high corn can go with full blown harvest just around the corner. We don't have to look back very many years to see corn rally at harvest thus the call spread for protection against higher prices.”
Dec ‘09: Same thought applies to corn; early yields are coming in rather large so it is hard to get bullish at these levels. Today we sold futures against our call spread to hedge the delta which neutralizes our position without exiting our core position. I protects our gains to the downside but still leaves us open to the upside. If you have corn to purchase for feed I would hold off for now unless we close two day's above $3.50 in the Dec '09 contract. It looks to me like we should begin a move lower back toward the $3.10 area.
The wild card is still what the funds will do but they may be met with good farmer selling this harvest assuming the crop is as large as I think it is. I will remain bearish corn until we have two consecutive closes above $3.50 in the Dec '09 contract.
Bottom line: I am looking for the market to experience an early high tomorrow.
Dec ‘09 Corn – Support/Resistance for 10-02-09
(R3) Resistance 3: $3.58 1/4
(R2) Resistance 2: $3.49 3/4
(R1) Resistance 1: $3.45 1/4
Today’s close: $3.40 1/2
(S1) Support 1: $3.36 3/4
(S2) Support 2: $3.32 3/4
(S3) Support 3: $3.24 1/4
MEAL – Dec ‘09 Electronic
Open – $285.30, High – $286.70, Low – $279.80, Close – $280.80 Down $4.70
Thoughts – Long Term (into November ‘09) – Sideways/Higher
09/30/09 I said: “We were choppy today in the meal market starting out lower then reversing back to the upside. The daily chart is beginning to show signs of losing momentum of from the most recent move higher. I don't have the Dec '09 contract topping out (per cycle indicators) until approximately October 8th. We continue to be long Dec '09 meal and will stay that way until we see reason not to be. As mentioned in corn, the market place is beginning to add premium into the market place for rains that may hinder harvest activities.”
Dec ‘09 meal: $285.50 has been an area of resistance for the last for trading sessions and actually has some significance technically. If the Dec '09 contract wants to trade higher and get more buyers in the market it will need to get back above this level and trade there for a couple days. We are still long meal because of some longer-term setups in the charts but may possibly be adjusting our position next week.
Bottom line: I’m looking for the market to experience an early low and late high tomorrow.
Dec ‘09 Meal – Support/Resistance for 10-02-09
(R3) Resistance 3: $296.20
(R2) Resistance 2: $289.30
(R1) Resistance 1: $285.00
Today’s close: $280.80
(S1) Support 1: $278.10
(S2) Support 2: $275.50
(S3) Support 3: $268.60
HOGS – Dec ‘09 GLOBEX
Open – $49.35, High – $50.20, Low – $48.30, Close – $48.625 Down $.975
Thoughts – Long Term (into December) – Negative
09/30/09 I said: “Dec hogs had an interesting day to say the least; we were down over $1.40 at one point then rallied back and closed down $.575 on the day. It still seems like this market doesn't know what it wants to do, however, today was the end of month AND end of quarter. When we have end of month and end of quarter trade we can see the market do weird things because money can be flowing for different reasons which have nothing to do with fundamentals. This could be the case for today based on the way the market rallied near the end of trade.
I talked about the sell signal at $50.20 stop the other day; it was triggered and is currently still active. The risk management buy stop order for this trade is currently $51.30 but will move lower along with the market assuming that is the direction we move. The Dec contract still provides good opportunity to enter into a limited risk strategy on bounces from these levels. We are hedged and will continue to be hedged until the market or better yet the industry tells us differently. We have coverage in place to provide upside to $58.00 in the Dec '09 contract if we need it.
I think most of today's end of day buying had to do with funds moving money around for the end of the month/quarter so they can get paid. I'm not paying much attention to today's trade in the grand scheme of things."
Dec ‘09 hogs: I said yesterday that I wasn't going to pay much attention to the buying that brought the market back off of its low yesterday and I believe today's action confirms that thought. I am not sure exactly how the cutout report is put together but they have the following information listed at the top of the report.
NW_LS500 ***RESENT FOR CORRECTION ON CUTOUT AND 23-27 LBS HAMS***
Des Moines, IA Thu, Oct 01, 2009 USDA Market News
Compared to Wednesday's Close: Fresh 1/4" trim loins not tested, 1/8" loins steady to 2.00 lower; butts generally steady; sknd hams 20-23 lbs 2.00-4.00 lower, 23-27 lbs steady to 4.00 lower ; sdls bellies steady with weaker undertones; lean trimmings not established. Trading very slow to slow, with very light to light demand and moderate offerings.
What I find interesting is when they report today's change for each category they report Loins up $1.14, Butts down $.44, Pic down $.06, Ribs down $.01, Hams UP $8.14 and Bellies down $1.46! This makes no logical sense to me at all but it is what it is I guess. My point here is I don't know how much I buy into tonight's cutout number being as high as it was. It was originally sent out as up $.53 then revised to be up $2.05 on the day. Hmmmm.
We are still short hogs and will continue down that path for now. Dec '09 hogs closed below the short-term uptrend line today which is negative from a chart perspective. I think I want to see the market trade for at least an hour tomorrow to see if this cutout number is for real or not. Cash hogs were listed higher this afternoon as well. To see the reports click on the cash and cutout reports link at the bottom of this page.
Bottom line: I’m looking for the market to make an early low tomorrow.
Dec ‘09 Hogs – Support/Resistance for 10-02-09
(R3) Resistance 3: $52.825
(R2) Resistance 2: $50.925
(R1) Resistance 1: $49.75
Today’s close: $48.625
(S1) Support 1: $47.85
(S2) Support 2: $47.15
(S3) Support 3: $45.225
(S4) Support 4: N/A
(S5) Support 5: N/A
(S6) Support 5: N/A
Click here to view cash and cutout reports
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