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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 - 04-13-09 - Hogs hold steady while feeds look for direction.

Apr 13, 2009

Hog Comments - 04-13-09 - Hogs hold steady while feeds look for direction.


If you have questions, comments or suggestions, contact me at 1-877-212-2564 or email me at jknutson@hurleyandassociates.comTo read what I was thinking at the highs and lows of the market go to  www.leanhog.net to view my archived posts.

It has been a while since my last post as my schedule has been crazy this past month, however, it looks like beginning this week I should have more of a normal schedule and get back to regular postings.  I have been working on updating www.leanhog.net (which will now give you a "site under construction" page until I am finished) to provide you with more quality information that is accessible when you need it.  I am excited about the new site and I hope you are too because I think you will enjoy it.  I plan to have the updated site completed prior to the end of the month and maybe sooner rather than later as I have made good progress. 

CORN - May '09 Electronic
Open - $3.90, High - $3.90 1/2, Low - $3.83, Close - $3.87 3/4 Down $.02 3/4.

Thoughts - Long Term (6 months) - Bullish/Higher

May '09 corn opened the day session on a weaker note with Crude Oil down over $3.00 a barrel and the Dow Jones off by more than 100 points.  We still haven't cleared any area to make me extremely concerned about the drawback we've had in corn as a matter of fact it has been somewhat anticipated.  I am only long 25% of needs with $2.80 puts in place to cover me to the downside; I also have a call spread on to the upside to make sure we have the coverage we need if I am wrong.  I exited all of my long futures positions around $4.03 1/2 and re-entered 25% of them at $4.02 because the market didn't break as soon as I thought it would.  I also placed some cheap call spreads in place last Thursday to get through the weekend and/or until I re-establish my long positions against my $2.80 puts.  

I had orders in today to buy another 50% of my needs at $3.76 1/2 in the May '09 contract but we didn't get that low.  We are now in the time-frame in which the corn market will be controlled to some degree by weather and planting progress.  As of right now I am looking for a test of $3.76 in the May '09 contract and possibly a test of $3.68 1/2 if the weather stay's nice.  Forecast's change and as of right now my cycle indicator says there isn't much to look forward to in the next couple of weeks in corn.

Bottom line - I am still bullish corn for reasons other than grain fundamentals, the U.S. Dollar Index was down 1.23 as I was writing this today and I am more concerned about the U.S. Dollar as a fundamental to corn than I am weather.  Support for tomorrow's market looks like $3.85 3/4, $3.83 and then down to $3.76 3/4.  Resistance should be $3.89 1/2, $3.90 1/2 and then up to $3.94.  I am expecting a sideways market tomorrow, there were signs of bottom picking today and would suggest buy stops above $3.90 1/2 for tomorrow but I am not convinced of it yet.  I am still cautious in the short-term at this price level but I am willing to begin scaling in purchases around $3.76 1/2 which will replace my long call spreads I talked about before.

 

MEAL - May '09 Electronic
Open - $311.10, High - $315.00, Low - $307.80, Close - $313.10 Up $1.90
Thoughts - Long Term (6 months) - Bullish/Higher

I said in one of my previous posts that I exited some of my meal because wanted to protect equity but would stop back into the market if I was wrong.  I was wrong and therefore bought meal on about 40% of needs with futures against my long puts and then purchased a cheap call spread to give me coverage to the upside if the market makes an extended move.  I am not sold on the idea the May '09 meal market is going to sky rocket from here but I know I am not smarter than the market.  I see signs on the charts that tell me meal is looking for a top thus I have less aggressive ownership in futures and more in a know risk position.  I had a sell signal in May '09 soybeans on Thursday at $10.23 1/2 which is still good even after today's action, it will be void if we touch $10.31 1/2 before a sell off.  

Bottom line - I am looking for an early high and a late low tomorrow.  Support for tomorrow looks like $311.40, $310.6 and finally $307.80.  Resistance should be $315.00 and then $319.00 if the market gets enough steam to get there.  Like I said earlier I am looking for an early high and a late low for tomorrow's meal trade.  We are nearing a cycle high in meal which would last until the middle of May '09; this is not a recommendation of any kind, just a stated observation. 

HOGS - June '09 GLOBEX
Open - $74.30, High - $74.425, Low - $73.725, Close - $74.10 Down $.175
Thoughts - Long Term (6 months) - Friendly

Thursday's higher cutout was obviously factored into Thursday's trade because there was very little enthusiasm in the June '09 contract today.  The cutout for today was also higher by $.51 but the market failed to respond favorably in extended hour's trade.  The June '09 contract has a cycle high approaching on Wednesday and then trends lower for nearly a week.  The June '09 contract closed above what had been resistance of $73.85 on Thursday and continued with today's close at $74.10.  The longer we stay above $73.85 the stronger our chances of rallying back toward $75.90, however, I think we will see $73.20 before we see $75.90.

The U.S. Dollar Index was very weak today and is still in a downward trend and I am expecting a test of the most recent low of $82.63 over the weeks ahead.  If the U.S. Dollar Index continues to weaken we could see more bullishness appear in the hog sector.  I am still short June '09 hogs with a call strategy in place to give me upside to $80.00 if the market should rally.  I want good confirmation that the market is finished moving lower before I exit short positions especially when I have call coverage in place to provide upside protection.  

Seasonal tendencies for market close on April 15th to the market close on May 1st are as follows since the year 2000 in June futures.  There have been 4 years we have moved higher on average of $2.60 and 5 years when we move lower by an average of $2.18.  Looks like it is pretty even BUT when you filter the data and only look for years that were above $70.00 June futures on the market close of April 15th the data changes.  In this case there were 5 years since 2000 in which the June futures closed above $70.00 on April 15th for the respective year.  In those years the market declined 4 times on average of $2.16/cwt or 80% of the time vs. the 1 year that it went up $1.275/cwt or 20% of the time.  I know it isn't April 15th yet but I will probably wait to see what the market is trading at on the 15th before making any adjustments to positions.

Bottom line - I am looking for an early high and a late low tomorrow as we are approaching the 15th of April and the May and June '09 contracts have a sizable lead on the cash index.  I expect support to be $73.97, $73.72 and $73.35.   I am looking for resistance to be $74.40, $74.82 and then $75.90 but I don't expect this level to be touched tomorrow.  I am looking for a near-term top in hogs this week and the beginning of a small retracement of the recent move higher.


NW_LS500
Des Moines, IA     Mon, Apr 13, 2009     USDA Market News

USDA NATIONAL CARLOT PORK REPORT as of:  3:00 P.M.
Purchases equated to FOB Omaha Basis.

Compared to Friday's Close:         Fresh bone-in loins not tested;
butts 3.00-4.00 higher; sknd hams 20-23 lbs 2.00 higher from last quote, other
weights not established; sdls bellies not tested; lean trimmings steady. Trading
slow, with light to moderate demand and light offerings.



-----------------------------------------------------------------
Loads PORK CUTS          :             22.75
Loads TRIM/PROCESS PORK  :               9.0
-----------------------------------------------------------------

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
-----------------------------------------------------------------------
04/13        31.8      59.99   74.20   69.15  39.94 103.96 43.43  76.68
Change :                0.51   -0.09    2.72   0.13   1.57  0.85   0.02
-----------------------------------------------------------------------

NW_LS831
Des Moines, IA     Mon, Apr 13, 2009     USDA-IA Dept of Ag Market News

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 :   .06 hgr   :   .64 lwr   :   .31 lwr   :  1.38 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 46.75-57.09 : 48.00-57.09 : 47.00-57.09 : 46.75-56.99
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    55.20    :    55.46    :    55.69    :    54.57
--------------------------------------------------------------------------
Head Count      :   13,144    :    5,254    :    7,102    :    5,849
==========================================================================

 
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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