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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 - 10-28-08 - USDA drops the ball in the Oct 10th report.

Oct 28, 2008

Hog Comments - 10-28-08 - USDA drops the ball in the Oct 10th report.



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

USDA CORRECTS OCTOBER CROP ACREAGE ESTIMATES

Contact: Keith Williams, (202) 720-4623 or Ellen Dougherty, (202) 690-8122

WASHINGTON, OCT. 28, 2008 – The U.S. Department of Agriculture today adjusted its official October acreage and production estimates for six field crops. USDA revised the numbers after discovering discrepancies in a Farm Service Agency (FSA) database of producer-reported crop acreage used by the National Agricultural Statistics Service (NASS). NASS published the changes this morning in a corrected version of the Oct. 10 Crop Production. The World Agricultural Outlook Board also issued an abbreviated World Agricultural Supply and Demand Estimates (WASDE) report reflecting the acreage updates.

This morning’s crop report includes changes to acreage and production estimates for corn, soybeans, sorghum, canola, sunflowers and dry edible beans. The revisions will have no impact on crop support payments to farmers.

Compared to the Oct. 10 release, the corrected Crop Production report reflects 1.2 percent fewer planted acres for corn, 1.4 percent fewer planted acres for soybeans, 1.9 percent fewer acres planted acres for canola, 0.8 percent fewer planted acres for sunflowers, and 0.7 percent fewer planted acres for dry edible beans. The report also reflects a 2.5 percent increase in planted acres for sorghum. Even with the reduced acreage estimates, the 2008 corn crop is still on track to be the second largest on record, while the soybean crop will be the fourth largest.

The revised WASDE report lowers projected supplies, use and ending stocks for both corn and soybeans. Price forecasts are raised slightly for both commodities. Sorghum supply and use projections are revised to reflect the higher forecasted production.

In calculating crop acreage, NASS draws upon several data sources, including farmer surveys, satellite imagery and information reported by producers to FSA. In the original Oct. 10 report, NASS’s production estimates were within the range of projections from private industry and other sources. Those independent projections had corn production ranging from 11.8 to 12.3 billion bushels and soybean production ranging 2.85 to 3 billion bushels. NASS projected 12.2 billion bushels of corn and 2.98 billion bushels of soybeans.

After the Oct. 10 reports were issued, FSA analysts noted a discrepancy between the raw data on its mainframe and the data it had provided to NASS on a system known internally as a “data mart.” The data mart correlates and organizes the raw data for presentation to FSA county staff, NASS and other users in a more concise and accessible format.

USDA analysts have confirmed that data mart information used in previous reports was consistent with the information in the FSA mainframe database. Database management experts will review the discrepancies in the October data, focusing on how the two systems interact and how the mainframe data are transmitted and translated into the format used in the data mart.

This morning’s corrected Crop Production report uses data from the FSA mainframe database, as will the Nov. 10 report.

As part of its comprehensive review process, USDA has notified the Office of Inspector General of the data discrepancy. Additionally, USDA has informed market regulators at the Commodity Futures Trading Commission and the Securities and Exchange Commission.

 

 

 

 

SOURCE - USDA

MY COMMENTS WERE WRITTEN PRIOR TO THE DOW JONES CLOSING 890 HIGHER TODAY...  THE DOW WILL TRUMP MY COMMENTS.

CORN
Let me get this straight, the USDA made a revision to the Oct 10th report because they found discrepancies?  The statement suggested a change to acres but they also lowered demand for corn.  The ending result for corn was a gross 167 million bushel decline in production from the Oct 10th report BUT they lowered the feed and residual by 50 million bushels and also exports by 50 million bushels.  All of the changes had a net effect of a 67 million bushel reduction in this year's carryout so what seemed bullish was actually no big deal.

Dec '08 corn opened much higher than it needed to today.  It opened the day session at $4.07 which is just below the number of $4.07 1/2 that I thought we would reach at some point this week.  I still need to see the market close above $3.90 1/4 before I get excited about another challenge of $4.07 1/2.  $3.86 3/4 is the 50% retracement back to the Sunday night low of $3.64 and this level needs to hold if the market has any shot of moving higher from here.

Bottom line - I expect Dec '08 corn to open slightly better tonight and find resistance at $3.97 3/4 if we even get that high.   It feels like the market wants to sell off and maybe touch $3.81 1/4 which is our next area of support.  If $3.81 1/4 doesn't hold support and we close below it I would expect another test of $3.64.  It feels like corn wants to be weak tomorrow and that is my call for tomorrow, weaker trade for Dec '08.  The daily chart is suggesting a possible sideways trade range between $3.64 and $4.09 in the Dec '08 contract, we will see.

 

MEAL
Dec '08 soybean meal had a tremendous gain in the overnight and early day session based on anticipation of a bullish revision to soybean acres.  Like corn the USDA reduced the production number by 45 million bushels but also lowered the export business by 30 million bushels for a net decrease in carryout of 15 million bushels.  I was surprised to see the market sell off as much as it did today considering the revision wasn't negative but it really wasn't bullish by any stretch either.  

Dec '08 meal needs to close back above $276.40 in the near future if it wants to challenge the high set last night of 291.30.  If it doesn't close above $276.40 then I would anticipate a test of $261.40 in the near future. 

Bottom line - I expect Dec '08 meal to open higher tonight and test $271.20 before it finds resistance and backs off.  Based on the hourly chart it suggests meal should make an early high and late low tonight/tomorrow.  I will go with a weaker call for tomorrow but the Dow Jones was around 150 points higher when meal closed and is now trading 600 points higher as I write this.

 

HOGS
I really don't have much to say about hogs other than I still don't like the way the Dec '08 chart looks.  I still think we have some downside in the Dec '08 contract.  There was nothing special about today's trade as we only had $1.00 trade range today from high to low.  The noon reports had cash lower once again which is really no surprise.  The U.S. Dollar Index is now trading lower as the Dow Jones makes new highs but the strong dollar hasn't helped hogs any in recent weeks. 

I believe we will still see lower prices for Dec '08 hogs either tomorrow or yet  this week.  I still think we could see another test of $57.60 and probably even down to $57.20 and I am still not ruling out the low of $56.00.

Bottom line - I expect Dec '08 hogs to trade lower tomorrow based on the charts.  If we do trade higher I think today's high of $58.57 (Globex pit) should hold as good resistance.  I anticipate a test of $57.20 tomorrow at some time. 

 

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
-----------------------------------------------------------------------
10/28       105.1      65.17   88.31   67.06  42.02  92.86 54.71  70.64
Change :                0.11   -0.04   -1.33  -0.05  -0.19  1.18   0.10
-----------------------------------------------------------------------

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 :  1.11 lwr   :  1.81 lwr   :  1.57 lwr   :   .62 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 50.00-58.75 : 50.00-58.75 : 50.00-58.75 : 52.32-55.41
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    54.85    :    55.70    :    55.99    :    53.10
--------------------------------------------------------------------------
Head Count      :   16,014    :    6,908    :    9,605    :    6,346
==========================================================================

 


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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