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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 - 10-06-08 - The Down Jones leads the way!

Oct 06, 2008

Hog Comments - 10-06-08 The Down Jones leads the way!


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

CORN
There isn't much to talk about with the corn market just yet, we opened weaker than overnight markets would have suggested, rallied a bit and then ultimately sold off to the limit and actually had a synthetic trade of around $4.10 or so in the Dec '08 contract.  Until Wall Street settles down and the credit markets get going again, I don't look for much good from these markets.  The rumor is that TARP (the rescue bill passed last Friday) is not expected to actually kick in for another 3-4 weeks. 

I said last week that if $4.84 didn't hold as support we could test $4.37 and both of these numbers have been touched and we are trading below both at this time.  A close below $4.37 would suggest a test of approximately $3.75 basis the Dec '08 futures.  The one thing the markets have going for them tomorrow is the way the Dow Jones came back on the close today.  It traded 800 points lower at one point today but rallied into the close.  The market stopped trading at 3:00 p.m. cst and it was around 325 points lower at that time.

Bottom line - I expect corn to gap lower tonight and maybe test $4.00 area with further thoughts of $3.75 at some point.  This can all go out the window if the stock market decides to turn around and head north for some reason.  It is hard to say where these markets are going during these times but keep your feed coverage in place via options if possible.  I thought it was a tremendous opportunity to protect feed $1.00 ago so it is even better now, just make sure you have the downside open.  The market has shown us in the last week that nobody knows what will happen.  CORN LIMIT  IS $.45 TONIGHT/TOMORROW.


MEAL

Dec '08 soybeans meal opened weaker than overnight suggested its open and then rallied.  The meal market seems to be the strongest link in the Corn, Soybeans and Meal mix.  Soybeans and corn were both trading limit lower today and soybean meal was down $17.50 which is just off limit lower.

We could see a possible test in Dec '08 meal around $229.00 but again like corn this hinges on what Wall Street does.  I am not saying once Wall Street bounces the commodities markets will be off to the races, I am saying we should regain stability in our markets.  Crude Oil was down $4.79 today closing at $89.04!

Bottom line - I expect the meal market to open lower tonight similar to corn and trade around for a while and wait until tomorrows day session before taking any significant direction.  Technicals nor fundamentals have been working that great these days so it is hard to give projection points because we need the market to get back to "normal" trade whatever that is.  Make sure you have call coverage in place to the upside, when this market decides to turn it will probably be swift!  SOYBEAN LIMIT IS $1.05 TONIGHT/TOMORROW.


HOGS
Dec '08 hogs gaped lower today opening around $59.50 and made new lows at $58.70 but closed back at $59.82.  I have to say, I am impressed with the way Dec '08 hogs traded today.  The candle on the day chart would suggest buy stops above todays high of $60.20 and I would tend to agree from a technical perspective but not so sure I want to bite with all of the outside influences being so undecided.  The US Dollar Index is up a bunch today too, over 100 points and the hogs still rallied over $1.00 off their lows in the face of limit down corn and soybeans and both feeder and live cattle.  Huh, looks encouraging to me.  I am not suggesting a buy in here although the charts say put a buy stop above todays high, I am pointing out the strength of the hog market in overall bearish feel of the markets in general today.

Bottom line - I am waiting for hogs to show me something that says they want to bottom, todays trade action was a good example.  I would still like the stock market to settle down before I get anxious to do anything in hogs.  Maintain coverage to the upside with call options against short hedges.  Under normal circumstances I would expect hogs to be higher tomorrow but the way the outside markets are trading I am not married to that opinion.

 

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
-----------------------------------------------------------------------
10/06        41.2      72.90   91.58   71.11  53.55  90.74 67.59  81.43
Change :                0.03    0.72   -1.10  -0.05   1.93 -0.51    unc
-----------------------------------------------------------------------

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 :  1.24 lwr   :  1.81 lwr   :  1.66 lwr   :   .14 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 58.00-69.69 : 58.00-69.69 : 58.00-69.69 : 58.00-68.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    66.32    :    66.26    :    66.53    :    66.12
--------------------------------------------------------------------------
Head Count      :   28,072    :   10,657    :   13,692    :   14,182
==========================================================================

 

 

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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