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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 - 10-23-08 - Grains get a small recovery and hogs are balanced.

Oct 23, 2008

Hog Comments - 10-23-08 - Grains get a small recovery and hogs are balanced.


Jeremy Knutson
1-877-212-2564
jknutson@hurleyandassociates.com
Side note: I have a big buy signal on the weekly Crude Oil chart at $68.75.  This is a conditional buy signal meaning I would like to see the market close above $68.75 this week and not trade below it next week.  If it does trade below $68.75 next week then I would like to see it close above $68.75 next week for sure but if it doesn't then the signal is gone.  This is one of those signals were if it is good, the market makes a big move.  This isn't a recommendation, it is an observation.  There is an OPEC meeting tomorrow as well that could affect oil prices significantly.
 
CORN
There was some enthusiasm in the corn market today which was a little more than I expected.  I thought we would be lower last night which we were and then move higher and touch $3.91 today.  We touched $3.91 but didn't stop there, we kept going until we hit $4.01 3/4.  I was impressed with Dec '08 corn today as it held firm in light of the Dow Jones dropping 300 points off of its high as the grain markets were closing.  The Dow Jones closed 172 points higher on the day which should bring support to tonights trade.
 
Dec '08 corn closed at $3.90 1/4 today which is below the $4.00 level I would have like to see it close above.  The close was still above the 62% retracement back to last nights low of $3.79 and if we hold this level of support tonight I would expect another test of $4.01 3/4.
 
Bottom line - I expect corn to open higher tonight and find follow through buying.  I think we will see some resistance at $3.96 but not enough to stop the market.  I feel we will test the $4.01 3/4 high either tonight or tomorrow.

 
MEAL
Dec '08 meal had a good run today closing at $269.00 today up $11.70.  I said yesterday that I had a target of $272.10 and today's high was $272.40 so this objective has been met.  I expect a test of $279.20 possibly tomorrow and if not tomorrow then early next week.  If the Dec '08 meal closes above $267.00 tomorrow that would confirm a bottom in the Dec '08 meal based on what I look at.
 
Dec '08 has resistance tomorrow at today's high of $272.40 and then up to $279.20, the support levels for tomorrow are $265.50 and then down to $263.90.  The Dow Jones is now up off of the low that were set at approximately 12:30 pm cst today which will give the Ag markets some strength going into the overnight session.  
 
Bottom line - I expect meal to open better tonight and trade better for most if not all of the evening.  I feel we will be firm tomorrow as well and touch the $279.20 level at some point.  All of this assumes the Dow Jones doesn't absolutely crash.  The Ag markets are beginning to trade more on their own versus recent weeks where we followed very closely to the outside markets.  I expect better trade in Dec '08 meal tomorrow.

 
HOGS
Dec '08 hogs opened up slightly this morning and rallied to $58.72 which is through the $58.30 area of resistance that I thought would hold.  Dec '08 hogs did make early highs and closed toward the low of the day which is close to what I thought other than I figured we would actually trade lower today.  The cash was still nothing to write home about in the noon report put out by the USDA.  National cash hogs were $2.29 lower but the regional cash prices were anywhere from down $.54 to up $.17.
 
I didn't like the close in Dec '08 hogs today, I think we are setting up for a slug of selling below today's low of $57.52 (Globex pit).  If we do get below the $57.52 level tomorrow and experience some selling I would target the $57.05 to $56.70 area before we find support.  If those levels do not hold then I see another test of $55.45 in the near future.
 
Bottom line - I expect Dec '08 hogs to open better tonight and not do much in the evening hours but tomorrow we should see selling below $57.72 in the form of sell stops.  I am not saying sell the open tomorrow but I don't like what I have seen over the last couple of days, it looks like the little rally we had is coming to a close unless we can get and close above $58.70.  My expectation for tomorrow is lower with a possible test of $56.70 to $57.00.

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
-----------------------------------------------------------------------
10/23        59.5      66.39   89.38   68.35  42.34  94.02 54.31  73.79
Change :                0.45   -0.27    0.38  -0.23  -0.29  2.06    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 :   .16 lwr   :   .16 lwr   :   .18 lwr   :   .28 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 50.75-61.50 : 50.75-61.50 : 50.75-61.50 : 51.00-57.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    57.28    :    58.92    :    58.82    :    54.30
--------------------------------------------------------------------------
Head Count      :   21,437    :   10,434    :   14,128    :    7,309
==========================================================================
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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