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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 - 09-22-08 - Everything's back in the saddle today!

Sep 22, 2008
CORN
Dec '08 corn opened higher this morning and didn't look back.  We closed the day $.16 1/4 higher but under a key number of $5.60.  I had a sell signal in the Dec '08 corn market today at $5.59 1/2, the market needed to close below $5.60 in order for the signal to be good.  It has done that but we still need to close below $5.60 tomorrow as well.  Crude Oil went ballistic today with the front month October contract trading as much as $25.45 higher at one point!  The November contract only got as high as $7.70 today only to back off along with the October contract.  With Oil on a fire and the U.S. Dollar Index in the can the Dow Jones took the path of least resistance today which was lower.  The Dow is currently trading 382.42 points lower as I write this with 5 minutes to go in the stock market session. 
 
Corn support tonight will be $5.49 1/2 then $5.46 1/4, resistance will be $5.64 1/2 then $5.79 3/4.  I am not looking for corn to trade toward $5.80 tonight nor am I looking for it to happen tomorrow either.  I expect corn to open higher tonight, maybe test the $5.64 area and then break lower.  I think we could test the $5.49 1/2 area in corn either tonight or tomorrow.  I neutralized my corn positions on October call options with intrinsic value.  I need to see if this $5.60 area is going to provide a drawback.  We closed above the 50% retracement level of $5.52 which is half way back to the most recent high of $5.80.  We will be watching this.
 
Bottom line - I expect corn to be softer tomorrow after the big run we had today.  The US Dollar Index is crashing so this should be supportive to commodities as a whole.  I expect good support around $5.46 1/4 - $5.49 1/2.  Funds were buyers of approximately 7,000 contracts of corn today.

MEAL
Soybean meal finally had a good day!  I have been expecting the market to rally but it has been a dog and failed to do so.  I am still long Dec '08 meal around $350.00 and will continue to hold this position.  Early reports of soybean harvest are beginning to come in and they are at or below expectation.  This will eventually catch up with the market and with the Dollar falling apart I would expect good support in the soybean market which is also support for the meal market.
 
I expect a better opening in Dec '08 meal tonight with resistance coming at $332.30 then $342.20.  I don't expect the market to get to $342.20 tonight or tomorrow but I wouldn't rule out later this week.  It feels like the higher opening will be met with some selling and a potential retracement back to $321.10 - $323.20.
 
Bottom line - I expect a better opening in Dec '08 meal tonight only to be sold and have a weaker day tomorrow.  I see support at $323.20 which I feel will hold the market.  I am not bearish at these levels, this is just my projection for tomorrows trade.  I am friendly meal this week.  Make sure you are covered in soybean meal for feed needs!

HOGS
Dec '08 hogs opened the day higher at $66.80 and settled at $67.35, just below my area of $67.50 I talked about last week.  I said with the close we had on Friday we should at least challenge $67.50 this week and we did with a high of $67.70 today.  I expected to see some buy stops above the $67.50 area but if there were some they must have been small because we didn't get much follow through above $67.50.  I need to see the Dec '08 contract close above $67.50 for a couple of days before I will get excited about the prospect of a rally.
 
The broadening triangle is still forming at the bottom of this move in the Dec '08 contract and it seems as if the formation wants to complete itself.  One more challenge of the recent lows would make it much more attractive to me but for now it is close.  I expect support tomorrow around $65.95 if we get there.  Dec '08 has had trouble closing over $67.00 for the last couple of weeks, today we finally did it.
 
Bottom line - I expect hogs to open mixed and move lower tonight and tomorrow.  Cash came in stronger by $1.00 or so and cutout was down $.80 today.  The U.S. Dollar Index is still in the tank so this should be a longer-term plus for hogs.  I expect a test of $65.95 tomorrow at some point. 


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
-----------------------------------------------------------------------
09/22        64.5      75.86   91.92   74.88  57.34  87.36 74.78  83.38
Change :               -0.80   -1.17   -3.76  -1.95  -0.48 -0.11   0.97
-----------------------------------------------------------------------
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 :  1.16 hgr   :  1.02 hgr   :  1.16 hgr   :   .57 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 59.00-73.00 : 59.00-73.00 : 59.00-73.00 : 60.00-71.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    68.87    :    69.83    :    69.94    :    65.38
--------------------------------------------------------------------------
Head Count      :   27,612    :   16,098    :   20,848    :    6,464
==========================================================================

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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