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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 - 10-01-08 - Waiting for a Senate vote at 6:30 PM CST.

Oct 01, 2008

Hog Comments - 10-01-08 - Waiting for a Senate vote at 6:30 PM CST.

Jeremy Knutson
1-877-212-2564
jknutson@hurleyandassociates.com

FCStone numbers were released after I wrote my comments below.
Corn yield at 151.70 versus a USDA yield of 152.30 in Sept.
Soybean yield at 39.40 versus a USDA yield of 40.00 in Sept.

CORN
Dec '08 FINALLY did what I thought it would do today, run down and test the $4.84 area of support.  The market got as low as $4.82 3/4 and rallied off of that number but the rally didn't get as high as the $5.05 - $5.09 area, it stopped short at $4.96 1/2.  The high for the session was $5.00 which happened in the overnight trade.  The volume in todays trade was much less than yesterdays but we did see some selling on the close.  It wasn't as much as yesterday but none the less it was selling.

The market traded higher for most of the day other than part of the first hour of trade and the last 5 minutes or so of the day session.  There are buyers out there but the nerves are not made of steel and it shows going into the close.  I was not impressed with the close today, but I liked the way the market traded during the day.  The bottom line is how it closes and like I said it was not great.  I believe FCStone is releasing thier yield estimates this afternoon around 3:00 PM CST for the 2008 crop.  If they are friendly I would expect a small pop in the market tonight but nothing significant, we still need to get something out of Washington D.C. before the markets get back to trading fundamental numbers. 

Bottom line - I expect Dec '08 corn to open slightly higher tonight and try to make another run at todays low of $4.82 3/4.  If FCStones numbers are bullish then I would not expect a test of todays low and possibly a test of todays high of $4.96 1/2 from the day session.  The Senate is suppost to have a vote on the rescue plan today and the House on Friday.  I apologize for my comments in yesterdays post, I said the House was voting today when it is actually the Senate.  If FCStones numbers are bullish I would expect better trade tomorrow but if they are neutral to negative it is lower from here.

 

MEAL
Dec '08 meal was the strong market this morning that got both soybeans and corn back on the plus side early in the trade session.  We didn't challenge yesterdays low like I thought we would but we really didn't do much to the upside either.  The market was supported and didn't have much of a day technically other than the fact we didn't make a new low.  China was in overnight looking for a couple of cargos of soybeans which lead to some optimism early on and the beans never looked back, meal followed along.  It is nice to see there is still some global demand for our Ag products during this time of financial crisis. 

The US Dollar Index traded near unchanged during most of todays trade session.  Crude Oil was as much as $4.50 lower and then traded about $.50+ higher before backing off again.  Grains seemed to be on thier highs when Crude was rallying.  It was rumored that France was going to have a rescue plan of its own but it was denied by the French Government so I am not sure where that one stands.  When this information was released the Dow Jones traded about 35.00 higher and was also when Crude was higher along with the grains.

Bottom line - I have similar thoughts for Dec '08 meal as I do for corn in relationship to the release of FCStones yield numbers.  If FCStone has bullish soybean yields then I expect meal to open higher tonight and try to move higher otherwise we open slightly higher and look to challenge yesterdays low.  My pure technical feel is for better trade again tomorrow but we need to get above $297.90 before I am going to get excited about an extended move higher.

 

HOGS
I said yesterday I thought hogs could trade better today and also said if we close below $64.00 we could see additional selling.  We didn't have to close below the $64.00 level before the selling surfaced.  We are off of our low of the day but still closed below the $64.00 level and we need to get back above it by Friday in my opinion if we want to salvage the Dec '08 hog chart.

$63.00 was the contract low for Dec '08 hogs (pit chart), we traded below this level down to $62.45 and then closed just below it at $62.97.  I would expect a mixed opening tonight and a possible test of the low tomorrow.  The cycle indicator that I look at has hogs moving higher tomorrow but this indicator hasn't been working well recently.  I expect the US Dollar Index to be affected by the rescue plan vote that the Senate is supposed to have today.  I think hogs will trade contrary to the US Dollar Index if we have a big move in that index.

Bottom line - I expect to test todays low of $62.45 tomorrow and there should be more sell stops below that level.  If we hold and move higher I expect $63.55 to give us resistance.  The cash market was basically neutral but the cutout was down $1.15 so it will be difficult for hogs to rally tomorrow unless it was all figured in today.  I think we will be steady to lower tomorrow based on current fundamentals.

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
-----------------------------------------------------------------------
10/01       110.1      72.85   89.26   71.72  53.39  87.82 69.04  82.47
Change :               -1.15   -0.94   -1.42  -1.20   0.21 -2.37  -0.24
-----------------------------------------------------------------------

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 :   .36 lwr   :   .22 hgr   :   .24 hgr   :   .71 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 59.50-74.00 : 61.00-74.00 : 61.00-74.00 : 59.50-70.27
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    69.71    :    71.38    :    71.44    :    67.31
--------------------------------------------------------------------------
Head Count      :   21,409    :    9,519    :   12,058    :    9,071
==========================================================================

 

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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