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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 - 09-18-08 - Corn did what? Hogs backed off from yesterday.

Sep 19, 2008

CORN


Corn fell apart faster than a $2.00 suitcase today as it opened around $.03 higher and then just tanked. We touched limit lower for a minute or two before bouncing $.11 off the low. Some of the volatility came from Crude Oil trading up to $102.24 only to sell off and trade lower for a fair amount of the corn trade session.  It is now trading $1.66 higher as I write this.  Gold continued to climb, it was as much as $75 higher at one point today only to retrace most of todays early gains when the Dow Jones began its afternoon rally.

Back to corn, I like it when we make big moves early in the day because they usually don't stick unless there is a very solid fundamental reason.  Today seemed to be more fund liquidation as I understand it, commodity funds liquidated around 13,000 contracts.   I have to say I didn't expect the market to do what it did today and I don't think I was alone.  We made lows below yesterdays low of $5.26 but closed above that level today settling at $5.27 1/4.

I expect corn to open lower tonight, find some support and try to make a rally toward the $5.41-$5.45 area of resistance which is 50% and 62% retracement back to the $5.58 high in today's session. The market seemed pretty weak going into the close today with what is rumored to be the effects of the trouble AIG is having on Wall Street.  The Dow Jones made a huge rally toward the end of the session closing around 400 points higher on the day, around 550 points off of its low of the day.

Bottom line - I expect a lower opening tonight and look for support to show up at lower levels. It might be a stretch expecting better trade tomorrow but it is Friday and funny things happen on Fridays!  I believe we will have mixed to higher trade tomorrow going into the weekend.

 

MEAL

Dec '08 meal didn't do well today but it wasn't a complete mess either.  We blew through the support points I talked about yesterday at $320-$321.  I have to say, this bean complex is really throwing me for a loop.  I am and have been looking for soybeans and soybean meal to bounce but the market isn't having it.  I am maintaining my stance to be hedged on meal, preferably with options.  I have a buy signal setup for tomorrow which would be buying  $316.50 on a buy stop order with an exit sell stop below the current low at the time of the fill of the buy order.  This is not a recommendation but more of an observation.

The meal market is so close to the August low of $311.20 that I find it hard to believe we will not go down and test it. I would expect another test of $311.20 and if we can't break through those lows then we should rebound.  Resistance for tomorrow is $320-$322 in the Dec '08 contract.

Bottom line - I expect meal to open lower tonight and find support.  Once support is established I think we can bounce some but I am not sure how high we can get.   I think $320-$322 tomorrow would stop the market for now.  The sell off today has been rumored to be leftovers from the AIG mess.


HOGS

Dec '08 hogs started the morning strong and then fell apart. Depending on the weekly close tomorrow, the weekly chart is showing signs of warning if one is short. This is not a recommendation to exit any hedges, it is just an observation, I still need to see the close tomorrow. Well, the range I talked about sideways range I talked about yesterday, $64.30 - $67.50 was actually proven today. I didn't expect to meet both objectives in one day but the thought was accurate. The high in Dec '08 hogs (Globex hogs) today was $67.30 and the low was $64.22, very close to the numbers I spoke of yesterday.

I am still of the opinion we could be forming a broadening triangle which is a reversal formation. Nothing has been formed or completed, I am just watching it to see how it unfolds. I am still hedged from the mid-$70's and will stay this way until I see fit to adjust my positions to protect equity. I currently have options in place to protect some equity but not all of it. I will wait for a day that we close above a prior day high before I get excited about a rally.

Bottom line - I expect hogs to open better tonight (5:00 PM CST) and possibly test $65.75 in the Dec '08 contract. I don't believe tomorrow is going to be fun a of trade.  I am unsure of which direction I feel the market is going to go. My gut says better because we had a negative day today and it is Friday so there should be position squaring going into the weekend. I will go with a better trade for tomorrow in Dec '08 hogs.

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
-----------------------------------------------------------------------
09/18        39.0      76.94   92.94   78.08  59.24  87.63 77.36  80.94
Change :                0.08   -0.12    1.27  -0.18  -0.02 -0.98   1.46
-----------------------------------------------------------------------
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 :   .16 hgr   :   .07 hgr   :   .07 lwr   :  1.35 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 59.00-70.75 : 59.00-70.75 : 59.00-70.75 : 60.00-69.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    66.46    :    67.55    :    67.40    :    64.83
--------------------------------------------------------------------------
Head Count      :   28,324    :   13,237    :   17,882    :   10,380
==========================================================================

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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