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Corn – Rumors surfaced over the weekend that China was working with Argentina to secure a corn purchase program. This was viewed as friendly to the corn market because even though the corn wasn’t coming from the United States it is still supply that is being drawn from and a sign of possibly more Chinese demand down the road. Last weeks action was quite negative on the weekly chart showing a key reversal but it isn’t the first time we’ve seen a key reversal in the weekly chart and the market shot back and rallied $1.50 in the face of it! The fundamental picture has changed so drastically over the last six months that any kind of break in the market warrants a look to secure a strategy to put a ceiling in feed corn.
Technically corn should move lower and fill the $5.28 1/4 gap that it left in the December 2010 contract over a month ago. If the market does decide to make a 50% retracement it would take the Dec ‘10 contract down to $4.75 but I see this as unlikely at this time. The market wants to be bullish but as we saw on Friday of last week, we have to be careful because of the length in the market. When people want to get out they get out and it is fast and furious! In my opinion we should have closed the Dec ‘10 contract toward $5.66 1/2 if we are going to see follow through to the upside tomorrow. We didn’t accomplish that so I’m of the opinion that we make an early high tomorrow and then drift.
Bottom line – I think we came too close to the $5.28 1/4 gap to not fill it. I don’t know why the market would want to leave unfinished business out there being we are so close. The intraday charts suggest an early high and late low for tomorrows trade. I think we are in for a volatile ride as we move forward (I know, a genius statement).
Meal – interesting to see how the soy complex has now become the leader in the grains because of the USDA’s ever vanishing crop. I guess it doesn’t matter what I think because the USDA numbers are the USDA numbers and that is what the industry has to go off of other than private analysts but to a lesser degree. Like corn, meal had an ugly week last week but it wasn’t as bad as our friend corn. The meal market is much higher than the gap it left at $321.80 and I don’t think it has any intention of filling that gap anytime soon based on current USDA data.
We are in a period now were need to focus on profit margin more than ever. Legging into feed purchases or hog sales could be a catastrophic under the current volatility structure of the market. Make sure you have a plan to lock in all three aspects of your crush if you are looking at doing anything. If you do leg into something the safest thing to do is use a known risk strategy so you are flexible with the market.
Bottom line – The intraday charts suggest meal makes an early high tomorrow.
Hogs – Hogs traded both sides of unchanged today and closed the day strong in the face of weaker cash markets. The noon cutout report suggested bellies could be higher at the end of the day and there wasn’t anything on the cutout report that said cutout was going to fall out of bed. It appears as if the cash market is getting into Holiday mode already as packers are holding their cards close and not willing to pay up for hogs. Although I’m not bearish hogs long-term because of the rising feed costs, I do think the next couple of weeks will be somewhat stressful if you are long the market.
There are stories making the rounds that some producers are choosing to exit the industry to salvage the equity they have left as they don’t want to fight big money in the markets and rising feed costs. The volatility in the market leave little room for error and some guys are just saying it isn’t worth it. I’m not saying we are seeing mass liquidation, I’m just saying it is unlikely for producers to wait or hang on as long as they didn’t last time before they say enough is enough. Two reasons being not enough equity and not enough emotional endurance to withstand another bout of losses.
Looking forward at what margins are in the deferred months are going to be a key factor in profitability and sustainability for the future. The market typically gives us a chance to lock in profits at one point or another but we have to constantly monitor the profitability levels of our operations.
Bottom line – The intraday charts suggest hogs make an early high tomorrow.
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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.