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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 - 10-20-08 - Grains continue to rise and hogs are mixed.

Oct 20, 2008

Hog Comments - 10-20-08 - Grains continue to rise and hogs are mixed.


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

CORN
Dec ’08 corn opened the session a tad better than the overnight close but had a negative first hour trade which would suggest a close lower than the open 80% of the time.  As I said on Thursday I thought there would be buying above Thursdays high of $3.91 ¾ and there was.  I said buying on Friday would be very aggressive which I still believe to be true.  I am feeling better about the market because we didn’t sell off going into the close today nor did we sell off very hard on Friday.  If I didn’t have a clue about the outside markets and influences I would say there is a high probability that last week was the low for Dec ’08 corn.  I will refrain from saying that because of the other issues that have been affecting our markets and not allowing the charts to work all that well in the past couple of weeks. 

I am beginning to see the indicators that I use begin to work again which is encouraging.  We closed at $4.18 ½ today which is above the 62% retracement back to the most recent high of $4.42 ½.  If we can continue to close above $4.06 ¾ then it is likely we will test $4.42 ½ again in the near future.  I do think we could take a break tomorrow for the moment.  If you look at the chart the Dec ’08 corn contract has moved $.49 from low to high in three days.  It is the biggest price rally we have had since the end of September.

Bottom line – I expect Dec ’08 corn to open higher tonight and trade higher early but may settle back later in the evening.  I think the market is due for a slight correction based off of the rally we had.  I think now is an excellent time to make sure you have feed needs covered with some type of strategy.  If you are buying cash corn or futures I would scale into it but if you are using an option strategy I would be very aggressive.

 

MEAL
Dec ’08 meal which has been the leader of the pack thus far seems to be ready to pounce.  The Dec ’08 contract has rallied $34.90 since last Thursdays low and I would expect a slight correction just as I do in corn.  The Dow Jones rallied into the close today and that should bring some carry over type excitement to the opening tonight.  It looks like Dec ’08 meal ultimately wants to reach the most recent high of $279.20 but I think we could see a small setback first, like I stated above.

Bottom line – I expect Dec ’08 meal to open better tonight and trade higher early but relax some later in the evening and the same thought goes for tomorrow.  I expect an early high and a late low tomorrow.  If we don't get that and we rally into the close, I will be very impressed with the action.


HOGS
Dec '08 hogs only had a $.90 trade range today, there isn't a lot to say about the hog market.  Last weeks trade action was negative and this weeks open was prime for continuation of trend which happens to be lower.  I expect resistance at $59.12 in the Dec '08 hog contract and support at $55.45.  I have a feeling we could test the most recent low of $55.45 because the cash market nor the cutout market are anything to write home about.

Bottom line - I expect hogs to be weaker tomorrow based on falling cash and cutout.  The futures market has been all but dead the last two trade sessions but I think there will be stops above todays high and also below todays low so therefore I think the market will accelerate in either direction.  My opinion is lower and the stops triggered will be sell stops.   

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
-----------------------------------------------------------------------
10/20        45.8      64.73   87.27   69.27  46.71  92.09 47.72  73.85
Change :               -0.29   -1.67    0.13  -0.02  -0.55  0.05   0.79
-----------------------------------------------------------------------
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 :  2.11 lwr   :  1.45 lwr   :  1.86 lwr   :  1.26 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 50.25-61.49 : 52.00-60.71 : 50.25-61.49 : 52.00-57.61
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    57.44    :    58.94    :    58.78    :    55.88
--------------------------------------------------------------------------
Head Count      :   21,006    :    7,255    :   11,057    :    9,673
==========================================================================
 
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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