If you have trouble viewing this page please visit the market commentary section of www.leanhog.net
___________________________________________________
Corn – First things first, I have to eat some crow. I was of the opinion that Dec ‘10 corn had made its high on the Thursday we hit $4.38 3/4 for the session high. The market proved me wrong on Friday by printing a new high but it failed to close above the old high of $4.38 3/4. I’ve been saying all along that I needed to see two if not three consecutive closes above $4.38 3/4 before I changed my tune and would get friendly to the corn market. 
We had a poor close on Friday for the week and the last two days haven’t sent up any flares that say you neeeeeed to own corn here.
I keep getting warning signs that the corn is nearly done but it has been admittedly stubborn at current levels and would make one think it wants to go higher. Early reports of corn yields have come in less than last year but in my opinion that isn’t necessarily uncommon for early harvest acres. I think we really need to get into the thick of harvest before we make a "good" assumption of crop size. I’ve been hearing a lot of "it just isn’t out there" type talk as it relates to the corn crop but I usually pay no attention to it because it is hard to tell what the nation will produce based off of field samples. Yes, it is the best thing we have to predict the crop size but when put into perspective it is just like making marketing decisions, it is an educated guess. I gave up on guessing crop size back in 2004 when we had a cool wet summer (at least in my backyard) and the crop was so far behind. I thought for sure we were going to have a small crop, much less than what the trade was thinking. Yep, you guessed it. A record crop. Needless to say I don’t spend much energy on trying to guess the crop size other than we have had a lot of rain and if the corn crop can surprise us in drought years what can it do in wet years? I don’t have the answer but the question is one I ask myself often. Don’t get caught up in the HYPE!!
Markets move based on perception of the future, not necessarily the facts of the here and now. Right now it seems like everyone and their brother is bullish corn. Not me. I could be wrong and that is okay as we will take the appropriate risk management actions to protect our operational risk. We can’t bet the farm on opinion. If we do get another close above $4.38 3/4 tomorrow then discipline suggests we need to have upside coverage on what ever isn’t protected in corn. We will do so with bearish option strategies (call spreads) or something of the sort.
I’m of the opinion that corn is living on borrowed time and that it is just a matter of time before we see a big correction and everyone and their brother goes from being bullish to being scared and exiting spec longs or fearful selling. Market psychology is like going to an event at an event center or stadium. There is typically a main entrance to the venue followed by the long line to get into the event. Typically if you walk past the mass of people you can find a short line with few people and you get in that much faster. My point is right now everyone is at the same gate waiting entry to the big upside expected to come in the market. Sometimes you need to step back, assess the situation and make decisions based on what you know and not what everyone else is doing.
From my experience in visiting with traders, producers and most anyone with an opinion for that matter begins talking about the market and their opinion and begin quoting what they’ve heard. It feels good to be a part of the crowd and a piece of the larger being that is the direction of the market but getting lost in an opinion can hurt. I wouldn’t doubt that I get quoted by saying so and so says that corn is negative and should be sold. The fact of the matter is that everything I write is garbage as far as your operation is concerned. I’m not saying I don’t believe what I write or that it is made up I mean you can’t make decisions based solely on what you read. You need some facts to back up the advice or opinion. I say my info is crap because I have the luxury of changing my mind 10 minutes after I post my article and I may not post another one for a few days or weeks for that matter so how are you supposed to know?
Don’t get me wrong I’m not insulting anyone’s intelligence and if I am I apologize for that as it isn’t my intent. I want to provide enough food for thought to get past the articles and begin thinking and researching what is actually going on in the world because once this takes place and decisions begin being made on numbers and facts it takes away from the emotion of the market place. "Where is the market going" is less of question and how do I protect myself is the big market question. Well, today was full of rambling but I think you get the jest of my opinion of the corn market. I would be curious to hear your thoughts on your corn crop if you are a producer. Do you think price is moving higher or lower and do you think your crop will be as large as last years. If you are a hog or livestock producer what is your opinion of the corn market? Do you believe prices are going to move higher or lower from here and are you at a panic level yet if you don’t have any of your corn locked up? Send us an email at leanhog@hurleyandassociates.com with your thoughts on corn. I look forward to reading your thoughts.
The dollar index is still on solid technical ground as I see it and is poised to continue moving higher over the coming weeks. I just don’t see how the commodities markets and the dollar index can keep moving higher together while the Dow and Crude continue to struggle with support. I think corn is living on borrowed time but I’m not willing to bet the farm on it so make sure your risk appropriately analyzed and the proper market positions protect you against losses.
Bottom line – The intraday charts suggest corn makes an early high tomorrow. Now is a good time to work with your risk manager to help develop a feed coverage strategy that fits your operation if you are making hog sales. Don’t let your opinion of the market stand in the way of making business decisions!
___________________________________________________
Meal – Oct ‘10 meal can’t seem to get a close above $300.00 which is fine by me! I’m still of the opinion that we work our way lower into harvest but in order for a bigger sell off to occur we need to see a close below a prior week low, 
in my opinion. If you need coverage on meal right now make sure it is with a known risk strategy. We are at important levels near $300.00 and if we get closes above that level for an extended length of time we could see some good upward movement. That said make sure you have coverage if you need it but if it is new coverage make it a know risk strategy versus straight futures. Talk with your risk advisor to make sure you do what is in the best interest of your operation.
I’m of the opinion that meal, like corn, is on borrowed time and it is only a matter of time before we see a correction to the downside. My opinion is negative in the soybean meal market at this time and I think we should see downside for the next couple of weeks. I would say take this possible downside opportunity to work up a meal purchase plan if you have hogs sold. Make your business decisions before the targets take place because it gives you an un-emotional state to make a decision in and then you just need to stick to it.
Bottom line – The intraday charts suggest meal makes an early low tomorrow.
_____________________________________________________________
Hogs – What a day in the pigs! Cash sounded like it was going to rebound nicely and the noon reports reflected that in the Midwest but cutout fell hard today moving $2.03 lower on 115 loads. Ribs, loins and butts are the reason for today’s big drop as they each lost over $5.00 on the day. In the last 5 marketing days the cutout has dropped $5.51 with loins leading the way down $21.15, ribs down $19.86 and butts down $8.77. Picnics were $5.57 higher, hams were $3.02 higher and bellies were $1.73 higher.
The interesting part is that loins are still on the high end of the historical range but well off of the high set earlier this summer. Bellies remain at lofty levels and ribs are still $123.51. 
We do have some room to move to the downside in the cutout but the cutout is at $91.23, the CME cash hog index is at $83.89, the national weighted average is for pigs is $78.50 and October futures are $75.15 as of today’s close. Hmmm, who’s making the money here? The packer should want to kill as many pigs as they can based on the perceived margins that they are getting.
I’m not wildly bullish hogs at this point but I’m sure not a bear of Oct ‘10 futures prices at current levels either. If somebody was essentially handing you $20 bills (packer margin) wouldn’t you want to grab as many as you could before the supply ran out? The same holds true for the packer, why wouldn’t they want to make a killing (no pun intended) on hog margin and slaughter as many pigs as possible to keep the flow of positive margin coming. I think I would want to but then again I’m not a packer. The hog market isn’t huge by any stretch of the imagination so throwing a few big orders out there along with negative news to help sink producer mindset is a pretty powerful tool in price negotiation.
The problem with the hog industry as it relates to the smaller producer is there are too many formula contracts out there and the art of negotiating pig price on a daily bases is next to nothing. If there were no packer contracts they would have no captive supply and wouldn’t be able to list ridiculous deferred basis bids knowing full well that the odds are they are going to make a ton of money on forward contracted pigs. It is amazing to see the price difference between formula priced pigs and open market negotiated pigs. The good also comes with the bad in relationship to price fluctuation but if you manage your risk in the futures market the lower cash prices should be offset in part by hedge gains. The reverse is true of course if the cash is higher and the hedge is lower. The point is know where you’re profitable and make decisions based on that.
The more control you have over your operation the more control the producers as a whole have over the industry. Think about it when someone is trying to talk you into a contract based on how bad things could get. Don’t get me wrong, I’m not saying all contracts are bad, there is a time an place like anything but sometimes preparing for a worst case scenario predicated on fear can provide an average at best outcome. Well, enough rambling but everything that I’ve written about have been thought and talked about with various people over the past few day and in some cases months. I thought I would through it out there for a talking point or to at least create some deeper thought. If you have comments or thoughts about what I’ve written, drop us an email at leanhog@hurleyandassociates.com.
Bottom line – The intraday charts suggest hogs make an early high tomorrow.
Check out www.leanhog.net to find numerous USDA reports all in one convenient location. Become a registered user and have access to pork cutout charts and the USDA 14 day hog slaughter schedule as a percentage of approximate daily kill capacity.
Below are some of the reports that are available as quick links on our home page. If you would like to become a registered user to access more custom information please click here.
_____________________________________________________________
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.
