This lean hog and feed commentary contains thoughts from Jeremy Knutson, a commodity broker with Hurley & Associates.
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Corn – May ‘10 corn touched my first target area of $3.63 3/4 both yesterday and today, now if we can get above $3.76 and close there for two consecutive days then we could make a run at $3.89 but I’m not holding my breath for that target. Profits remain excellent and one should keep business ahead of emotion and make an effort to protect your profits with a known risk strategy. The May ‘10 contract settled above the downward trend-line for the second day in a row. The trend-line I’m using is starting at the $4.35 top in January of 2010.
It looks like tomorrow could be a breather for the corn market, retrace some of this weeks gains as we head into the weekend. If the market does close near the high of the week then we will indeed have had a good week from a technical perspective and keep on track with my thought that we should remain supported through the balance of this month. We will need outside forces (events, fundamental change, outside markets, etc.) to continue to move much higher than $3.92 in the May contract in my opinion.
Bottom line – The intraday charts suggest corn makes an early high tomorrow. Now is a good time to buy call options on corn and buy cash hand to mouth until fundamentals change.
Meal – Meal had a whopper of a day today closing near the high of the session as well as near the $283.60 resistance level I spoke of the other day. As I’ve said before, if we close two consecutive closes above $283.30 we should test $289.00. If $289.00 is taken out then we look toward the $300.00 level again. I still believe we should remain firm though out the month of April and then see what things look like at the beginning of May for further direction.
I’ve been saying for the last couple of weeks that meal could be firm but I want to keep things in perspective that I am a longer-term bear and believe that any price rallies should be short lived until we can make a case fundamentally to keep prices higher than current levels.
Profits remain strong so it never hurts to buy calls to make sure you have a cap on your feed costs, I would suggest taking a look at calls for both corn and meal so you know what your ceiling is for feed costs.
Bottom line – The intraday charts suggest meal makes an early low tomorrow. You may have noticed that I changed the line color of the meal chart, this is due to the market closing above the downward trend-line.
Hogs – I said two days ago in my post that there was a sell signal triggered at $86.00 which looked like it was going to be a good signal as of yesterday’s close. Then we had today. I’ve been saying for awhile that I needed to see the June ‘10 hogs close above the $86.00 level for two consecutive days before I would get friendly the hog market. Today was day one. I still have some skepticism with the trade action we had today. The market was near the high prior to the open and there were rather large sell orders showing up around $86.00 when cutout has been up strong for the last few days. Hmmm
Even this evenings trade is the same way, very few bids but larger offers above the market. We’ve seen this happen before when the big boys are getting ready to goose us. Is someone manipulating the cutout prices to trigger optimism and good volume buying so the big boys can get short and fly under the radar? These are questions of mine and the bad thing is I don’t have any answers. It gets my attention when we are near what could be a top or a bottom and the cutout numbers move hard in the direction of the futures trade and large futures orders come into the market contrary to the current market direction. This tells me that someone knows something and are preparing themselves. Is this a conspiracy theory? Maybe. I have paid attention to it in the past and it can be a good indicator of a potential reversal.
I will continue with my stance that I will reluctantly get friendly the June ‘10 hogs if we get another close above $86.00 tomorrow. Does this mean you shouldn’t hedge or protect yourself? NO! I look at it this way, can I afford to have another bad year in the industry and survive as well as how bad will I feel when I look back and see the opportunities that were out there. Don’t get caught up in the market hype, stick to business and your numbers. Cutout was up $2.81 again today on moderate volume but part of that was due to 2 loads of bellies which were $7.31 higher today so the cutout is slightly skewed today in my opinion.
have been negative to June hogs for about two weeks now and the market has been stubborn and standing firm based on good cutout and cash hog numbers. Yesterday I said I did have a buy signal show up at $84.00 stop and so far that signal has been good even though I thought it would fail. With today’s action we matched our contract high of $85.90 would normally leave a double top but the overnight session made a new high at $86.05 and has since retreated.
At MINIMUM put options or a known risk strategy should be used to protect profits as well as protect against any events that have the possibility of popping up like H1N1 proved to us last year.
Bottom line – The intraday charts suggest hogs make an early low tomorrow.
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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