CORN - July ‘09 Electronic
Open - $4.13 1/4, High - $4.28 1/2, Low - $4.06 1/4, Close - $4.21 1/2 Up $.04 1/4.
Thoughts - Long Term (Into September ‘09) - Bullish/Higher
Thursday I said: “The market place is still concerned with the weather that has moved through the Midwest particularly the Eastern Corn Belt which still has some rain in its forecast. As I said on Monday, I have learned not to give up on a crop until it is harvested and in the bin but we are getting later in the planting season and it is only now beginning to grab my attention. From an objective perspective we have to remember the equipment that is used in today’s world, it is huge and efficient so it doesn’t take as big of a window to get the crop planted like it used to. If you look at the chart insert you can see that Illinois is only 10% planted as of the 10th compared to 55% last year and 84% on a 5 year average, Indiana is 11% vs. 57% and 70% respectively as well as Ohio is 22% vs. 47% last year and 68% on the 5 year average. The nation as a whole is on pace with last year but still behind the 5 year average.
We have managed to close above $4.17 1/2 which is a key area of support for me and I will continue to place value on this level until otherwise stated. I am still looking for a test of $4.49 which I MAY sell into on the first test of this level but I will decide based on the way we get there. I have had orders in to sell futures at $4.48 for the last few days in case we get a quick spike higher from these levels which would be a sizable daily move but we have failed to get there. I have this order to sell on a large one day advance because of the cycle high projection of May 17th. If we happen to get to $4.49 in a slower steady climb then I may just trail my long position with a stop or buy puts to protect equity. I am still long $3.80 June ‘09 call options that I am working to manage equity in because they are deep in the money and also expire next Friday so they are just like long futures at this point but I still know what my risk is but I want to keep as much equity as I can in what we have made thus far.
As I mention earlier I am still looking for a test of the $4.49 area in the near future and if we can’t break through that level after a few days of trying then we could retrace back down toward $4.01. If we do break through and close a couple day’s above $4.49 to solidify it as solid support then my next objective will be $4.95 and then $5.35. At this point based on the weekly charts I wouldn’t count out these higher prices but I believe we will need the Eastern Cornbelt to continue to have trouble getting into the field.”
July ‘09 corn: The market took a nose dive on Friday compared to what we had been used to earlier in the week. Most of the sell off was due to profit taking going into the weekend and I we had some of that follow through last night as well. Most of the negativity was over within the first hour of trade in the day session today. I still have the June '09 $3.80 call options in place for feed needs and on Friday I purchased a $4.30 June '09 put and sold a $4.70 July '09 call option for 1/2 cent to lock in the $.50 difference between our $3.80 and $4.30 strike price options which was executed just in time right before the market dropped. I honestly didn't expect that big of a decline on Friday but I wasn't going to rule out a decline in today's trade. I actually exited the position this morning at $.11 credit to give our position the upside potential again. I executed this trade within 20 minutes of the market open today and have been participating in the upward movement in July '09 futures.
The reason I bring the previous paragraph up is to let you know I was wrong on what I "thought" the market and the risk management principles that I exercised saved equity in our position. My point is to always try and do what is right and don't get caught up in what you "think" will happen. No keep in mind it doesn't always work this way because sometimes the market does do what you think but if you position yourself so it is win/win you will be a lot less stressed and live to be in business another day.
The trade action from today was quite friendly from the perspective because Sunday night's open was a gap .02 3/4 lower than Friday's low which usually means the market is getting too anxious about a move in the direction of the gap and then reverses. These types of gaps are usually at the top or bottom of a longer market move but for now it was at the bottom of this intermediate market move. This looks very friendly to me I am going to stick with the thought of a testing the $4.49 area to see if we can break through this level or not.
Bottom line: I am looking for the market to experience an early low and a late high tomorrow. The forecast is for drier weather in the Eastern Corn Belt planting areas for this week but the market didn't seem to care today and it may be for reasons other than weather. The U.S. Dollar Index was trading lower again for most of the day and is down .31 as I write this. I am looking for firm trade tomorrow with follow through of today's action regardless of what the planting progress report shows today.
July ‘09 Corn - Support/Resistance for 05-19-09
(R3) Resistance 3: $4.31
(R2) Resistance 2: $4.28 1/2
(R1) Resistance 1: $4.26
Today’s close: $4.21 1/2
(S1) Support 1: $4.21
(S2) Support 2: $4.18 1/2
(S3) Support 3: $4.16
MEAL - July ‘09 Electronic
Open - $357.10, High - $366.70, Low - $355.00, Close - $366.30 Up $8.10
Thoughts - Long Term (Into September ‘09) - Bullish/Higher
Thursday I said: “I ended up placing an order to buy meal on Tuesday morning at $346.00 in the July ‘09 contract and filled there or better that day because of the bullish corn report we had from the USDA. I had been saying for awhile I thought meal could back off but it was stubborn and prices were staying inflated. Sometimes you have to admit that you were wrong and get back in the market which I did. I have a cycle high projected for today therefore I was trailing my long positions with a sell stop that was triggered today to protect equity on the July ‘09 long meal futures I had; I was stopped out around $359.80. The close we had in the market today is a setup for tomorrow’s trade which leads me to believe we are going to see a gap higher and when that comes at what could be the end of a move it COULD signify a short-term top. If we gap higher than $362.30 tonight then it would signal a sell STOP at $361.50. If the sell stop is actually hit then a protective risk management buy stop should be placed $.50 above the market high when the sell stop triggers. Again, this is a conditional signal meaning it is only valid IF the market opens higher than $362.30 tonight. I will also say this, if you need to own meal make sure you have a plan to participate on something if the market moves higher. It has been interesting to hear Wall Street analyst talk about owning commodities and the Ag sector is usually mentioned and soybeans are typically a favorite. If the U.S. Dollar index continues to weaken and more “investment” money comes into the market your operation could get pretty ugly with no plan, talk to your broker or advisor!”
July ‘09 meal: I am still out of the meal market from an aggressive position perspective but we do have some bullish put spreads in place to give us some upside coverage while we assess the market. The cycle projector that I speak of frequently calls for a high on May 20th which has changed from what I have previously mentioned. It like most any analysis tool is calculated based on history and as we move forward history changes therefore changing my indicator. It isn't much of a change but it is different from early last week's version. I am looking for more follow through to the upside tomorrow as I look for grains to be higher across the board. If the July '09 futures open higher than $366.70 then that would produce a sell signal at $366.20 on a sell stop with a protective risk management buy stop above the most current high at the time of the fill for the sell stop.
Bottom line: I’m looking for the market to experience an early low and a late high tomorrow. I am still skeptical of the market at these levels because of my cycle high projection.
May ‘09 Meal - Support/Resistance for 05-19-09
(R3) Resistance 3: $374.30
(R2) Resistance 2: $369.60 (gap area from 08-29-08)
(R1) Resistance 1: $366.80
Today’s close: $366.30
(S1) Support 1: $363.90
(S2) Support 2: $360.90
(S3) Support 3: $359.50
HOGS - June ‘09 GLOBEX
Open - $66.60, High - $67.275, Low - $65.85, Close - $66.775 Up $.25
Thoughts - Long Term (Into August) - Friendly
Thursday I said: “The June ‘09 contract followed through on downside momentum from yesterday on the trader thoughts of the pork cutout not having much life left in it as we move forward. The cutout or carcass value settled at $60.96 and May ‘09 futures are trading at $61.97 which implies the CME cash index will move higher from the current level of $58.92. The index is lower than the futures because it is a lagging indicator of cash hog prices. What has the trade in a tizzy (to my understanding) is the cutout value is $60.96 but June ‘09 futures, our next front month futures contract, closed at $67.00 today which provides the market with a spread of $6.04 and the cutout has made a nice recovery effort after the publicity has subsided on the H1N1 flu so they are thinking how much more can it go. I wish I knew the answer to that question but I would be lying if I said I did.
The June ‘09 contract has made a good run over the last week but is still $4.65 cwt lower than the close on Friday April 24th, the last trading day prior to the media blitz on H1N1. Cutout has moved from $59.28 on April 24th to $60.96 as of the market close on May 13th with some of the heaviest product movement in the last 16 months. May ‘09 futures closed at $69.00 on April 24th and settled at $61.57 yesterday and the IA/MN afternoon weighted average cash price was $61.82 compared to $64.76 as of market close on May 13th. Huh, interesting how demand has slowed (insert sarcasm). I look at this and say the packers did one hell of a job getting cheap meat purchased during an H1N1 window of opportunity and of course the retailers did too. Kudos to them as they executed quite well with the given opportunity (no sarcasm).
In summary comparing the market closes on 04/24/09 and 05/13/09:
DEMAND SIDE - Cutout - up $1.68 cwt, IA/MN afternoon wtd average price - up $2.94
FUTURES SIDE - May ‘09 - Down $7.43 cwt and June ‘09 down $3.70 cwt.
Objectively speaking what is real and what is propaganda? If someone has a better answer or perspective please send me an email.
Okay, I get frustrated with the “information” out there because some of it is just propaganda; I am also looking at this market from a longer term perspective then say a day trader. If you are a day trader or trader period all of the aforementioned “information” is important but from a longer-term positioning perspective I want to keep an eye on what is really happening not what I am told is happening. There is a huge difference! I wrote this commentary prior to the afternoon USDA reports and cutout was up $.89 again today but cash was near steady.”
June ‘09 hogs: The June ‘09 contract sold off early today but managed to find support around the 62% retracement level from the most recent high back to the contract low. The June '09 contract had a good close as it held the 50% retracement level of $66.425 by settling at $66.775. The cutout number was down tonight but my thought is most of this has been factored in from last week when the trade was skeptical of cutout but it hung in there for the most part. The "weak" cutout that was talked about is now surfacing and I believe may have reverse affect on the market by moving it higher versus what logic says when negative news comes out.
I am of the opinion that today was a good day technically as we moved below the 50% retracement level, tested the 62% level and then popped back up and settled above the 50% retracement level of support, $66.425. I had a cycle low in the hourly chart today and I have the market trading higher tomorrow with a probable challenge to today's high of $67.275 and beyond if we hit buy stops. There was also talk of Russia being back in the market for pork which is really what got the market moving higher again today.
Bottom line: I’m looking for the market to make an early low and a late high in tomorrow’s trade.
June ‘09 Hogs - Support/Resistance for 05-19-09
(R3) Resistance 3: $68.25
(R2) Resistance 2: $67.70
(R1) Resistance 1: $67.275
Today’s close: $66.775
(S1) Support 1: $66.725
(S2) Support 2: $66.40
(S3) Support 3: $65.85
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