Hog & Corn Comments - 08/18/09 BIG failure in hogs today, cutout $2.07 lower.
Aug 18, 2009
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CORN – Sep '09 Electronic
Open – $3.13 1/2, High – $3.17 1/2, Low – $3.11, Close – $3.14 1/2 Up $.00 1/4
Thoughts – Long Term (into December '09) – Sideways/Lower
Yesterday I said: "The market started off weaker than what the overnight closed but managed to find support at a 1/4 cent above our $3.04 contract low in the Sep '09 contract. I was actually impressed with the way the market closed as it was near the top of the trade range and also held the contract low for support. As of right now we have a double bottom in Sep '09 contract at $3.04/$3.04 1/4 and I would expect to see some additional buying above $3.18 tomorrow.
There really is no fundamental reason for corn to move higher at this point but there are some signs that point to a possible rebound over the coming days. I need to see Sep '09 close above $3.18 for two consecutive days before I get excited about any thought of a rally. I am looking for the market to open steady to higher tonight and look for follow through to the upside tomorrow.”
Sep '09: The market could have just as well been closed today because it was just that exciting. The Sep '09 contract did very little today as it traded a very narrow range of $.06 1/2 from high to low. Sept did experience an early low and firmed as the day progressed but did nothing to get anyone excited. Today was an inside day meaning today's high and low were both inside of yesterday's trade range. This typically means whichever direction the market breaks out of tomorrow is probably the direction it will move for the near-term.
I don't have much to add to yesterday's comments other than I expect tomorrow to have an early high and weaken as the day moves on. The weather still doesn't seem to be a threat and if this truly is the case then we could be looking at record crop come harvest and of course that points to lower prices. The last year of comparison of a record crop was 2004 and we found a low in the first part of Aug, rallied for most of the month and then proceeded to make new lows into the end of November and December. I believe this year will be similar assuming we do not get an early frost and weather cooperates.
Bottom line: I am looking for the market to experience an early low tomorrow.
Sept '09 Corn – Support/Resistance for 08-19-09
(R3) Resistance 3: $3.21 1/4
(R2) Resistance 2: $3.18
(R1) Resistance 1: $3.17 1/2
Today’s close: $3.14 1/2
(S1) Support 1: $3.12 1/4
(S2) Support 2: $3.10 3/4
(S3) Support 3: $3.04 1/4
MEAL – Sep '09 Electronic
Open – $309.50, High – $315.00, Low – $307.50, Close – $313.70 Up $4.20
Thoughts – Long Term (into November '09) – Sideways/Lower
Yesterday I said: "If you notice my last sentence above I said we could make a nice move in the direction of the sideways range breakout and we have done just that having the Sep '09 contract losing $24.50/ton since it traded below the $332.00 I spoke of. The support level of $309.40 needs to hold tomorrow if the Sep '09 meal contract has any chance of moving higher again, if we close below $309.40 then it looks like a potential test of $296.70 area with an ultimate goal of $285.00.
I believe the market will experience an early low tonight and tomorrow but I am not expecting any fireworks to the upside at this time. Rallies will probably be sold in this market until we see something fundamentally happen to change that, like a frost scare.”
Sep '09 meal: Sep meal also had an early low and late high just as was thought yesterday so here too like corn there wasn't much significant action today other than today's low matched yesterday's low which is potentially friendly. I will hold off on the bullish thoughts for soybean meal for now but I can't ignore the potential positive sign that left its mark on the chart today. This $307.50 area could produce a buy signal if the market makes a new low below $307.50 and then trades back above it. If all of this takes place then the signal would be at $308.00 on a buy stop with a protective sell stop $.50 below the most current low.
I still think upside coverage through a call option is warranted for now to get through the potential for frost but we will need to take a serious look at the meal situation assuming we have good weather for the remainder of the growing season. It feels like this is a dead market for now.
Bottom line: I’m looking for the market to experience an early low and late high tomorrow.
Sep '09 Meal – Support/Resistance for 08-19-09
(R3) Resistance 3: $323.40
(R2) Resistance 2: $319.00
(R1) Resistance 1: $315.00
Today’s close: $313.70
(S1) Support 1: $311.30
(S2) Support 2: $309.40
(S3) Support 3: $307.50
HOGS – Oct '09 GLOBEX
Open – $44.475, High – $46.85, Low – $43.05, Close – $44.525 Down $.175
Thoughts – Long Term (into December) – Negative
Yesterday I said: "The Oct '09 looked like it was off to an early price grave again today only to find support early. It managed to close over $1.00 cwt off of the low for the day and $.35 off of the high of the day, this is pretty decent action. The action was decent but it didn't provide any buy signals or anything like that just yet. We did purchase some call strategies on Friday in the October '09 contract to protect the equity we have in our hedges. This was a risk management move that had little to do with a feeling of price direction.
Our position is structured so we still have downside hedge potential but also have upside in the Oct '09 contract which is where all of our hedges are. We remain in the Oct '09 contract because of the weakness in the cash market and the also for the potential of SOWS going to slaughter. Canada announced over the weekend they will incorporate a SOW buyout program in the estimated area of $78 million Canadian dollars to help reduce the Canadian SOW heard and also provide government backed loans for those that may be able to weather the storm. This announcement didn't seem to affect the market any
Cutout was $.88 higher tonight but I am looking for an early high tomorrow and then I expect the market to drift the balance of the day. I think some of the cutout number was factored into today's trade action."
Oct '09 hogs: Ouch, October took some people for a ride today by trading over $2.00 cwt higher at one point and then closing lower on the day. Ugh. I was looking for the market to make an early high today but I thought it would come within the first hour of trade but it wasn't until the third hour when it surfaced. I couldn't find fundamental reasons for the rally this morning so we didn't make any adjustments to any positions but we really don't need to because we established a risk management position on Friday to protect equity gains in our short hedges.
Cash was around $.50 higher today per the USDA but the cutout was down $2.07 on heavy volume. The trade must have had mixed signals on what the afternoon product was going to do today with the violent swing in trade that we had today. At this point we remain hedged with option strategies to protect some of the excellent equity we have made in our short hedges over the last month. My hourly chart suggests we will see a late high tomorrow but I don't know if I agree with it and for now we will do nothing different than what we have been doing for some time now, stay hedged.
Bottom line: I’m looking for the market to make an early high tomorrow.
Oct '09 Hogs – Support/Resistance for 08-19-09
(R3) Resistance 3: $46.85
(R2) Resistance 2: $45.55
(R1) Resistance 1: $45.075
Today’s close: $44.525
(S1) Support 1: $44.075
(S2) Support 2: $43.05
(S3) Support 3: $39.64
(S4) Support 4: $35.27
(S5) Support 5: $29.40
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