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Corn – March ‘11 corn made a new high of $6.37 today yet failed to close above the old high of $6.34. Some of this in part is due to the fund re-balancing that is taking place on or near the close. The last several years the market has made a limit move either up or down off of the January report. 2009 and 2010 were limit down days in which 2010 kept dropping and never touched the report day low going into expiration and 2009 did test the report day low but not the report day high as it moved into expiration. 2007 and 2008 on the other hand were limit higher years where 2008 actually retraced and made a lower low than the report day low, however, it did trend higher into expiration. The 2007 March contract came down and tested the report day high but didn’t get much below it and traded sideways to higher into expiration.
So, what does all of this history mean? I don’t know! We are seeing optimism in the commodities markets and today was no different. This history above suggests but doesn’t guarantee that we will likely have a support level of $6.05 1/2 to $6.37 (March closed at $6.31 today) as we move forward through the expiration of the March ‘11 contract. One thing to note is that the U.S. Dollar index is at 80.08 as I write this and in 2008 on its low was near 70.00 which would be a sizable drop from current levels and also (in theory) trigger more commodities type investments.
All I have to say is continue to look at profitability as far out as you can and don’t worry about where the price of corn is for the time being. If the crush works then corn is cheap enough! Work with your risk manager to take advantage of profits if you have them, obviously every operator is different.
Bottom line – The intraday charts suggest an early high and late low for tomorrows trade.
Meal – March ‘11 meal is up contract highs and is on a solid trend higher. I do have a sell signal setting up on the weekly chart that would suggest the $375.00 area is a sell area on a stop with a risk management buy stop $3.00 above the most current high at the time of the short trade execution. I’m not getting too gung ho on selling meal for any great length of time and the same is true in meal as it is with corn, check your crush and if your crush is profitable then meal is "cheap" enough!
Make sure that you visit with your risk manager to protect upside price potential with a know risk strategy ESPECIALLY if you have hogs hedged!
Bottom line – The intraday charts suggest meal makes an early high tomorrow.
Hogs – Feb ‘11 hogs rallied today to a high of $81.30 but settled just off of that level. The deferred contracts gained on the front month in relationship to the higher feed prices andcontinued strong demand for pork. The cutout level was up another $1.00 today and is now just over $82.00. In 2010 the cutout peaked over the next week and then took a breather but I don’t know if that will happen again this year or not. All cuts have gained nicely over the past week but still have room to move to the upside as it relates to all-time highs in each given cut.
Maybe we are beginning to see the consumer pay for the higher feed prices and I say this because I saw beef tenderloin at my local grocery store (regional chain, not a mom and pop shop) listed at $18.99/lb! Um, wow. I haven’t noticed a big jump in pork prices at the retail level (locally for me) but they are higher than a year ago. At some point this market is going to come to a screeching crash and I’m not sure what I completely mean by that yet. It may be in the form of extremely wide basis levels because the consumer will eventually quite buying pork if it becomes too expensive but if speculators are buying "commodities" for the sake of investment will they actually care where the futures price is at in relation to cash? These are more questions than answers.
The next thing that pops in my mind is okay, when prices do get to a level where the consumer backs off then maybe hog prices go down. What if the feed ingredients do not go down in conjunction with the hogs? More blood in the streets for hog producers until the herd is reduced to get demand going? What if the demand level is at prices that are still too high for the general public? Someone has to pay for this meat in order for us to produce it. Exports will have to pick up the domestic slack I guess.
Please don’t take my statements in hogs today as any kind of recommendation or warning of where the market/industry is going. I’m writing to stir thoughts in your mind as well as my own and if you have anything you would like to share send me an email with your thoughts as I would love to hear them (email@example.com). All I know is that if profits are there I beg of you not to be a cowboy and guess the market is going to give you much more. You could get more but you could get a lot less as well. In times like these keep your nose in your financials and know what your profit is and protect it if and when you can!!!
Bottom line – The intraday charts suggest hogs make an early high 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.