Hog & Corn Comments – 07/27/09 Pork cutout $.85 lower today.
Jul 27, 2009
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CORN – Sep '09 Electronic
Open – $3.17, High – $3.23, Low – $3.11 1/4, Close – $3.22 1/4 Up $.06
Thoughts – Long Term (into September '09) – Sideways/Higher
Last Wednesday I said: "In response to variable weather conditions in key crop-growing regions, the National Agricultural Statistics Service (NASS) is collecting updated information on 2009 acres planted to corn and sorghum prior to the August 12 Crop Production report.
The June 30 Acreage report included estimates of 2009 planted area for principal crops, based on data collected from producers in early June. To ensure that the August forecasts accurately reflect any changes in planted acreage since June, NASS will expand its routine data collection activities in late July and early August. The agency will ask growers to update their reported acres planted to corn in seven states: Illinois, Indiana, Kentucky, Missouri, North Dakota, Ohio and Pennsylvania. Growers in Illinois and Missouri will also be asked to update their reported acres planted to sorghum. ”
Face value this suggests a reduction in acres on the Aug 12th report but may also increase yield. The states in question are mostly those that were wet this spring. It has been reported that North Dakota alone has 1.2 million acres of prevented plant corn that wasn’t factored into the June 30th report. Loss of these acres in North Dakota is much different than if they were lost in Iowa or Illinois but they are still acres gone assuming the report is accurate.
I would strongly suggest owning call options through the Aug 12th report. This may be a non-event but the market had a major drop from its high and warrants some respect at these levels and knowing this information.”
Sep '09 corn: Corn was the trade favorite today along with wheat as soybeans looked like the red-headed stepson (no disrespect to red-headed stepsons out there!) of the bunch by trading lower on the day. The corn market gave back some of the gains from Thursday at the end of last week but the weekly chart with potential bottoming pattern. The last two weeks of trade in the Sept '09 corn have provided warning signs that a potential reversal could happen; we still haven't seen that reversal as we need to close this week above $3.28 1/4.
The weekly crop ratings are out tonight and should provide the market with some further direction tonight and into tomorrow. $3.23 1/4 is a 50% retracement level back to the $3.42 1/4 high we had two weeks ago and could provide some further resistance as it did today. As I mentioned last week the USDA is going to "update" the acres in seven U.S. states due to "variable weather conditions" and all of this will take place in the Aug 12th report. If the USDA would lower acres (which is the logical guess) then I would also expect an increase in yield to somewhat offset any changes. Weather is still key to any kind of major rally in this market unless the USDA decides to stun us once again as they have begun to bring the integrity of their reporting into question, at least in my mind.
Bottom line: I am looking for the market to experience an early low tomorrow.
Sept '09 Corn – Support/Resistance for 07-28-09
(R3) Resistance 3: $3.31 1/2
(R2) Resistance 2: $3.28 1/4
(R1) Resistance 1: $3.23 1/4
Today’s close: $3.22 1/4
(S1) Support 1: $3.20 1/4
(S2) Support 2: $3.18 1/4
(S3) Support 3: $3.13 1/4
MEAL – Sep '09 Electronic
Open – $299.10, High – $301.10, Low – $296.20, Close – $296.60 Down $3.10
Thoughts – Long Term (into September '09) – Sideways/Higher
Last Tuesday I said: "Aug meal happened to be the strongest link in the market today only closing $2.10 lower on the day. Meal is still at the bottom of what is a cycle low on my daily chart and is projected sideways to higher into the beginning of August. The Aug '09 contract really did nothing of consequence today and had a relatively benign trade day. The close suggests we should open steady to better tonight but I believe we will find resistance early in the $323.90 area.
Meal looks friendlier than corn does right now and I want to maintain call ownership to take advantage of the decline we've had in the market. Like corn we will need to see a change in weather or some other outside source of information that will change the way the market is viewed.”
Sep '09 meal: As you may have noticed I have started talking about the Sep '09 meal contract instead of the Aug '09 which will run into first notice day on Friday the 31st. The Sep '09 contract needs to hold support at $294.90 if it has any chance of re-testing the $304.70 high posted last Thursday. The daily chart shows us in an upward movement into next week before it settles down again and maybe drifts lower.
We still have protection in place in Sep '09 meal via call options. We will maintain a long option position for the time being, we were able to buy back our short $360 call for $1.50 today to give us unlimited upside potential in this position. We are still short $290 puts and long $320 calls for the time being. We will look to exit the $290 puts on the next bounce if there is an opportunity. Longer-term weekly charts are still holding support at $291.70 and if this continues to be the case we should rebound and test the $328.70 area at some point in the future.
Bottom line: I’m looking for the market to experience an early low and a late high tomorrow.
Sep '09 Meal – Support/Resistance for 07-28-09
(R3) Resistance 3: $304.50
(R2) Resistance 2: $301.30
(R1) Resistance 1: $298.30
Today’s close: $296.60
(S1) Support 1: $294.90
(S2) Support 2: $292.50
(S3) Support 3: $290.00
HOGS – Aug '09 GLOBEX
Open – $59.25, High – $59.625, Low – $57.825, Close – $59.175 Up $.125
Thoughts – Long Term (into December) – Negative
Last Wednesday I said: "Took $2.15 off the market today due to sell stops as well as a weak cash market. The cash did finally close over a dollar higher on the day and cutout was up $1.24 but I believe the higher cutout was figured into today's trade. I am of the opinion that August '09 still has some room to move to the downside unless we can get the cash market to keep bidding up for hogs like the USDA reported it did today.
Packers have a positive margin and they need to begin using it on a consistent basis as well as keeping the cutout market higher before I get too excited about the upside in the Aug '09 contract. The market has rallied some since the afternoon cash and cutout reports have come out but there are willing sellers above the market to absorb the buying. I am looking for hogs to take a breather tomorrow after today's big decline but I think it will be met with selling unless the cash market shows extended strength."
Aug '09 hogs: Aug '09 hogs rallied during the latter portion of the trade session today but never really posted any major volume in doing so. My first thought is someone knows something somewhere along. By having this rally late in the day the charts look somewhat encouraging for tomorrow from a daily perspective. I would expect some buying above today's high of $59.625 with buy stops around $59.90 or so. My cycle indicator still points lower next week and I will stay on course with that but it doesn't mean we can't have a bounce somewhere along the line.
We still need the cutout AND the cash to move higher before futures can make a significant move higher. The packers do have some margin at their disposal but they have been reluctant to use much of it thus far. I will maintain a negative attitude for the time being until we can get the cash side of the business rolling and when there has been enough liquidation in the industry to sustain price rallies.
Bottom line: I’m looking for the market to make an early low tomorrow and firm as the day progresses.
Aug '09 Hogs – Support/Resistance for 07-28-09
(R3) Resistance 3: $61.375
(R2) Resistance 2: $60.55
(R1) Resistance 1: $59.65
Today’s close: $59.175
(S1) Support 1: $58.725
(S2) Support 2: $57.825
(S3) Support 3: $57.22
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