Hog & Corn Comments - 09/15/09 Cutout up $1.33 as hogs close strong.
Sep 15, 2009
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NO COMMENTS WEDNESDAY THRU FRIDAY OF THIS WEEK AS I WILL BE ATTENDING A CONFERENCE.
CORN – Dec ‘09 Electronic
Open – $3.17, High – $3.47 3/4, Low – $3.16, Close – $3.46 1/2 Up $.28 3/4
Thoughts – Long Term (into December ‘09) – Sideways/Lower
Yesterday I said: "The market started weak today by making the day session low within the first 45 minutes of trade and then sat there most of the day. My opinion hasn't changed much from my last post which is bearish until proven otherwise. Corn is still in a profit-taking rally as far as I'm concerned because funds are still selling this market and we have been rallying on declining volume. $3.20 3/4 should provide resistance for now as that would get us 62% of the way back to the high of Aug 28th.
It doesn't feel like the trade is getting all that excited about the prospect of an early wide spread frost, it seems logical that there will be places affected by an early frost and some yield will be lost but not on a large enough geographic area. It feels like we may just trade around here while the market looks for news to support longer-term direction. My opinion is lower for now until we get into December, however, this opinion could change with a widespread frost. We still have coverage in place to protect against higher prices and will continue to have for the time being.”
Dec ‘09: Well everyone decided to get excited about frost all at once today! The Dec '09 contract was only 3/4 cent higher around 6:30 a.m. CST but by the time it closed it rallied and closed around $.04 3/4 higher with most of the rally coming after 7:00 a.m. It didn't take long for the market to make a burst higher during the day session as stop orders hit and propelled the price and volume. We were delta hedged against some short $3.20 puts which we purchased our short futures back at $3.27 today and also exited our short $3.20 puts which leaves us with a long $3.20 Oct '09 call.
The volume was HUGE in the Dec '09 contract today with all of the stop orders and short-covering. The frost prediction by the GFS weather model is for the Western Corn Belt and is projected to happen around September 25th. The GFS isn't a very consistent model compared to others and I believe it is more of a short range model vs. projecting weather 10 days out. My point is we can probably expect this model to change and possibly flip flop as we move forward which will create more volatility.
At this point we will continue to hold a know risk call option for upside protection in the event that this frost is for real which could send the market even higher. The market will probably trade with the forecasts for the next week so be prepared to get thrown around. Funds were net buyers of over 20,000 contracts today.
Bottom line: I am looking for the market to experience an early high tomorrow.
Dec ‘09 Corn – Support/Resistance for 09-16-09
(R3) Resistance 3: $4.00 1/4
(R2) Resistance 2: $3.68 1/2
(R1) Resistance 1: $3.57 1/2
Today’s close: $3.46 1/2
(S1) Support 1: $3.25 3/4
(S2) Support 2: $3.05
(S3) Support 3: $2.73 1/4
MEAL – Oct ‘09 Electronic
Open – $283.00, High – $303.30, Low – $281.30, Close – $301.10 Up $17.80
Thoughts – Long Term (into November ‘09) – Sideways/Lower
Yesterday I said: “The key number of $281.50 I've been talking about for the past week or so has finally been touched. I said a test of $281.50 was likely but I also thought it would hold support for now and thus far that is true. I am getting to the point where I think meal may have done enough to the downside for now and is due for a correction to the upside. I to a point where I am comfortable moving our call positions lower as the market begins to search for higher prices.
I don't have a specific strategy in mind at this time but will be working on entering one over the coming days. The Oct '09 contract closed below $281.50 on Friday but managed to get right back above it today which is a friendly factor.”
Oct ‘09 meal: It didn't take long for meal to rebound as it had a strong move higher along with all of the other grains. I purchased October meal today around $296.00 and will hold it for now as we look for a reason to continue to hold it or to sell it. The weather forecast took the trade by storm today causing corn to rally which brought soybeans and meal along for the ride as well. I thought the $281.50 area was going to hold support and today's move leaves the chart looking pretty good. I have a cycle indicator that says we should begin moving higher until approximately October 3rd.
It looks like we should see some additional follow through buying tonight and early tomorrow but all of the gains in meal and corn depend on the forecasts. If the forecasts get warmer then we could see this rally go away, we are truly in a crap shoot for now.
Bottom line: I’m looking for the market to experience an early high and late low tomorrow.
Oct ‘09 Meal – Support/Resistance for 09-16-09
(R3) Resistance 3: $339.20
(R2) Resistance 2: $317.20
(R1) Resistance 1: $309.10
Today’s close: $301.10
(S1) Support 1: $287.10
(S2) Support 2: $273.20
(S3) Support 3: $251.20
HOGS – Dec ‘09 GLOBEX
Open – $49.20, High – $52.00, Low – $48.60, Close – $51.875 Up $2.875
Thoughts – Long Term (into December) – Negative
Yesterday I said: “So far the comments I last posted have been accurate from the perspective of a spike high in the Dec '09 contract. The Dec '09 was lower today and looks like it should start weak again tomorrow based on the way we closed the day. The U.S. and China have gotten into a bit of a trade spat since President Obama announced a 35% tariff on Chinese tires which triggered the Chinese to say they will retaliate by taking action against U.S. automobiles and chicken imports.
This is just what the hog market needs, more meat domestically! This Chinese story was some of the news that was floating around today along with cash bids coming in weaker during the noon report. Cutout at noon was un-established but ended the day by coming in $2.59 higher taking back all of the losses and then some from Friday's move lower. The market rallied $.30 after the cutout was released but it wasn't a mad rush to buy futures so I'm not sure the cutout number is going to have a tremendous reaction from the Dec '09 contract.
Today was the end of the Goldman roll which was selling the October and buying the December. The "roll" has been taking place since last Tuesday and completely throws the market out of a logical rhythm in my opinion. I would expect the December to start losing ground to the October contract as we move forward in time based on the seasonal tendencies of this spread relationship to invert (Oct higher than Dec) during this time-frame. I am still of the opinion that this is a good time to enter into a known risk strategy for hedges that are placed in the Dec '09 contract!
I would think we should see some early speculator money come into the market based off of the cutout being $2.59 higher tonight but I don't think it will last nor do I think we will have a runaway market to the upside tomorrow."
Dec ‘09 hogs: When I wrote "I would think we should see some early speculator money come into the market based off of the cutout being $2.59 higher tonight but I don't think it will last nor do I think we will have a runaway market to the upside tomorrow." yesterday I thought to myself this is just tempting the market gods and sure enough, boom! The thoughts of higher cutout tonight along with product interest from Russia sparked the market.
I was looking for an early low with the market strengthening as the day progressed but I DID NOT expect the Dec '09 to touch limit up. The interesting thing to me is the commodity funds are shown as record short 31,000 contracts of hogs in the last CFTC report and the Index funds are long 67,000. I was of the opinion that we were/are in for one more stab at contract lows in the Dec '09 contract but this price action is making me wonder. My cycle indicator is showing a cycle high between now and Friday for the Dec '09 contract and then trade lower into the end of September.
We continue to be hedged in the Dec '09 contract with upside up to $58.00 and we will keep this position in place until we can nail down more concrete evidence that the market is turning but for now I would use this opportunity to enter into limited risk strategies if you need hedges in place.
Bottom line: I’m looking for the market to make an early high tomorrow.
Dec ‘09 Hogs – Support/Resistance for 09-16-09
(R3) Resistance 3: $57.625
(R2) Resistance 2: $54.225
(R1) Resistance 1: $53.05
Today’s close: $51.875
(S1) Support 1: $49.65
(S2) Support 2: $47.425
(S3) Support 3: $44.00
(S4) Support 4: N/A
(S5) Support 5: N/A
(S6) Support 5: N/A
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