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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 - 10-13-08 - Ag markets have nothing on the Dow Jones today!

Oct 13, 2008

Hog Comments - 10-13-08 - Ag markets have nothing on the Dow Jones today.

Jeremy Knutson

Dec '08 corn had a friendly opening last night by gaping lower than Fridays low and then moving higher.  The Dow Jones helped to some extent today by trading 500 + points higher during most of the day session for the Ag commodities.  $4.18 1/2 was 50% of Friday's trade range and provided resistance during todays trade.  We need to close the market above $4.20 1/2 in order to make a run toward our most recent high of $4.42 1/2.   

It is hard to get excited about the corn market rallying here because of all the tricks it has played the last couple of weeks.  The Dow Jones was higher and thus kept most other markets higher as well.  I would like to see another close above a prior day high before I get too excited about anything to the upside. 

Bottom line - I expect Dec '08 corn to open mixed to higher tonight but my eyes are all on the Dow Jones for right now.  The corn market isn't trading corn, it is still trading outside markets so it is tough to get a good feel for direction other than lower.  I will go with higher calls tonight and then an early high in the day session tomorrow unless the Dow Jones continues to move higher.

Dec '08 actually had a buy signal overnight when the market traded below $250.20 and then made a move higher.  We made a low of $246.70 last night and a high of $263.80, of which neither were breached during the day session.  The weekly chart on Dec '08 meal is showing warning signs of slowing in regards to our recent decline.  Todays action wasn't too concerning one way or the other.

Dec '08 meal looks like it wants to trade higher tonight/tomorrow but we will see how the outside markets treat us.  The Dow Jones had its largest single day rally in history with a 936 point jump today.  I would expect the enthusiasm to follow through in the Ag commodities tonight.  The Dow was only 400+ higher when the Ag markets closed today.   

Bottom line - I expect Dec '08 meal to open higher tonight and trade higher.  If we retrace lower we should expect support at $255.30 and $253.20.  Resistance will be at $263.20 and then on to $267.00.  If we can close tomorrow above $263.20 then our next target will be $279.20 which is our most recent high.

Dec '08 made a charge right out of the gate today.  There wasn't any major cash news to contend with that suggested a bullish environment but the US Dollar Index was heading south fast.  The only problem with weaker Dollar is it was actually considerably higher on Friday so the drop today, although significant, it wasn't as much as if we were steady last Friday.

I liked the way hogs traded on Friday, grains and cattle were all down limit but Dec '08 hogs only closed around $1.00 lower.  Impressive.  The Dec '08 needs to close above $61.00 like it did today in order for me to think we could take another stab at $62.57.  The selloff in the market later in the session looked to be profit-taking and would suggest another move higher toward todays high of $62.85. 

Bottom line - I expect hogs to be modestly lower tonight/tomorrow but outside influences may have an effect on the price.  I think support will be at $60.70 in the Dec '08 and upside resistance is $61.85 - $62.10 and then up to todays high of $62.85.  Cash isn't anything to write home about so a runaway train to the upside looks unlikely at this point. 


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
10/13        50.8      68.53   90.95   69.89  48.94  91.61 56.59  75.87
Change :               -0.05    0.69   -1.31  -0.18   0.81 -0.78  -0.11

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 :  1.63 lwr   :  2.00 lwr   :  1.87 lwr   :   .84 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 54.50-65.00 : 54.50-65.00 : 54.50-65.00 : 54.50-64.41
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    61.48    :    61.97    :    62.08    :    60.73
Head Count      :   19,333    :    7,530    :   10,590    :    8,552


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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