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Corn – March ‘11 corn struggled to get back some of what it lost yesterday and getting the contract back within a 1/2 cent of the market close on Monday. Today was an inside day on the charts which would suggest we should see stops on both sides of today’s high and low. Whichever direction the market breaks out of is the likely direction it will move for the next couple of days. Monday’s volume in the March ‘11 contract wasn’t large when comparing to pre-holiday trade but non-the-less it was enough to keep the market strong into its close.
The activity in over the last couple of days would suggest some minor profit-taking in the market and traders are building up steam to try and take out $5.94 1/2, $6.07 3/4 and ultimately the main goal will be to get above the November ‘10 high of $6.17 1/4. If you have livestock sold and are waiting for a "break" to buy corn on I would analyze that strategy quite carefully. At a minimum I would suggest having an out of the money call option in place because there is no telling where this market could go if things get moving.
I think weakness will continue to be bought based on "investment" type buying. The Dollar index is looking for direction but my charts suggest a downward bias which would promote commodity buying. So, again with this having been said I would make SURE you have some type of know risk protection in place during the time-frame of your needs to make sure there are no surprises.
Bottom line – The intraday charts suggest an early high and late low for tomorrows trade.
Meal – Jan ‘11 meal has essentially been trading sideways for the last month (actually forming a wedge pattern) and is looking for a breakout direction. This market is going to go somewhere and with all of the bullish enthusiasm that we are getting from Wall Street analysts. Granted all of the fundamental information that the USDA has provided to give us bullish fundamentals can be erased with the stroke of a pen, which we have seen for the last three years in some form or fashion on several different crops.
Like corn, if you have livestock sold and are waiting for a "break" to buy meal I would make sure I have some out of the money call options in place to protect against a run away upside market. The runaway upside market isn’t a prediction it is the possibility that needs to be considered and whether or not your operation can withstand that type of blow.
We are in a period now were hog producers need to focus on profit margin more than ever. Legging into feed purchases or hog sales could be a catastrophic under the current volatility structure of the market. Make sure you have a plan to lock in all three aspects of your crush if you are looking at doing anything. If you do leg into something the safest thing to do is use a known risk strategy so you are flexible in the market.
Bottom line – The intraday charts suggest meal makes an early high tomorrow.
Hogs – Feb ‘11 hogs dropped some today but we had very good volume on the move. We rejected lower prices today by closing near the 62% retracement level of $74.66. The cutout and cash numbers were positive tonight as cutout was $.99 higher and cash was slightly higher in the meat and live hogs were higher yet. Along with corn and meal having tremendous upside based on what outside forces can do to our small Ag markets, hogs have the same potential. The potential as I see it is more in terms of the summer and deferred months vs. the Feb ‘11 contract.
The easiest way to hedge hogs right now is to look at your crush margin and if you have a good margin because you have a contract price for weans then lock in corn, meal and hogs when the acceptable margin is there. With today’s volume in the Feb ‘11 contract and the type of trade activity we had, it wouldn’t surprise me to see today as a short-term bottom for the Feb ‘11 contract. If this is the case we will need to see follow through buying above $75.15 tomorrow and with higher cash and cutout there is a good possibility this could happen.
$74.66 needs to hold as support otherwise $73.28 and $72.57 are likely targets. I’m not of the opinion that we are going to get that low. I think we need to try and challenge Monday’s high of $77.275 to see if we can get above it and if we do and close there for two consecutive days then we should test the $78.02 high and then the next target will be the contract high of $81.37 which will need some help from the fundamental market in my opinion. I’m not a huge bull or bear from the current levels but I do favor the upside for the next couple of weeks (in the futures market that is).
Bottom line – The intraday charts suggest hogs make an early low tomorrow.
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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.