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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 - 10-07-08 - The Down Jones is at it again!

Oct 07, 2008

Hog Comments - 10-07-08 - The Down Jones is at it again!


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

CORN
Dec '08 corn started the morning in good shape opening higher by $.03 3/4 and rallied some but couldn't find enough support to keep the rally alive.  We got as high as $.05 3/4 higher at one point but that is all it could do.  Once the Dec contract decided there wasn't any buying left, it took the path of least resistance, lower.    In the last hour of trade the market was $.11 1/4 lower at one point but managed to close down $.07.  

I am not shifting from my comments yesterday suggesting a test of $4.00 and if things get bad enough we could see $3.75 after that.  Let's see if $4.00 happens first before we get too carried away.  The market seemed to follow the Dow Jones today, the Dow was higher early in the session which firmed the opening call for corn but faltered and ended up trading lower.

Bottom line - I expect a test of $4.21-$4.23 at some point either overnight or tomorrow.  If the market can sustain trade above these levels for an hour or two tomorrow then I will say we should test todays high of $4.29 3/4 BUT if we don't trade above the resistance points I listed above then I would say we are on to lower lows once again.  I feel like we could see lower prices again tomorrow however is also feels like the market is trying to settle down and find a trading range.

 

MEAL
Dec '08 meal ended the day higher today and actually traded higher the entire session.  Dec made a high of $260.00 today which is above the 50% retracement level back to yesterdays high of  $268.60 but we failed to close above the 50% level.  50% is $259.20 which will still be resistance tonight and tomorrow, the next level of resistance will be $261.40.  If we continue to trade below these levels we should test our most recent low at $250.30.  

Crude Oil was trading as much as $5.00 per barrel higher early this morning when both meal and soybeans were trading on their highs.  By the end of the market session for grains Crude Oil was only trade approximately $.50-$1.00 higher or so. Crude Oil is currently trading below $90.00.

Bottom line - I expect a test of the $259.20-$261.40 area only to find resistance.  I still need to see a daily close above a prior day high to get excited about a possible price reversal back to the upside.  I think this is still a great opportunity to cover meal with call options.  We still need Wall Street to straighten out before we can get the commodities markets rolling again, this is just my opinion.

 

HOGS
Dec '08 hogs were stronger like I thought they should be today.  It is such a crap shoot anymore with the outside markets trading all over the place.  I am very pleased with the trade action today in the Dec '08 contract.  We traded higher than yesterdays high right on the open and never traded lower during the session.  The strength held into the close for the Dec '08 contract which was the strongest contract in the pit.  Cash bids for hogs were stronger early this morning but it didn't last long once packers filled their needs.  

The US Dollar Index was down over 100 points early today and is now down 66 points.  I expect to see a possible test of the $63.25-$64.30 area over the next few days given todays close above prior day highs.  Todays close above a prior day high was the first time we have done this since September 22nd, 2008.  I am not going to say I am bullish hogs here but I am looking for a correction at this time. 

Bottom line - I expect to see a test $62.40 area tomorrow with the possibility of reaching $63.25 if we get lucky.  I haven't seen the afternoon cash or the cutout as I write this so that could also change things but technically I expect better markets tomorrow.  I would prefer to see a steady to lower open tonight/tomorrow because that would be the best open for follow through to the upside.  

 

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
-----------------------------------------------------------------------
10/07        86.4      72.33   91.69   70.82  53.25  90.50 65.50  81.68
Change :               -0.57    0.10   -0.30  -0.30  -0.24 -2.10   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 :   .17 hgr   :  1.10 hgr   :   .86 hgr   :  1.60 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 55.50-70.00 : 55.50-70.00 : 55.50-70.00 : 57.00-66.89
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    66.67    :    67.68    :    67.63    :    64.52
--------------------------------------------------------------------------
Head Count      :   30,865    :   17,844    :   21,388    :    9,477
==========================================================================

 

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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