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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 - 10-27-08 - An all day rally in corn and hogs stay firm.

Oct 27, 2008


Hog Comments - 10-27-08 - An all day rally in corn and hogs stay firm.

 

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



CORN

Dec '08 corn didn't follow the overnight action of being $.05 lower, it actually opened about 1/4 cent higher.  The overnight news was the equity and foreign stock markets tumbling once again.  The Dow Jones futures were down over 200 points at one time in the overnight session.  The Dow opened lower and traded as much as 174 lower but rallied as the session went on.  It was towards its high when the Ag markets closed this afternoon.

Dec '08 didn't spend much time lower today; as a matter of fact, it mostly traded lower during the first hour of trade then spent the balance of the day firmer.  The Dec contract has a big weekly buy signal at $3.71 1/2 which is conditional.  We need the market to close above this level on Friday and hold gains into next week.  If the signal is good it could be a violent move higher from here.  I am not holding my breath just yet.  I am just pointing out the signal.

Bottom line - I expect Dec '08 corn to open slightly lower tonight because the Dow Jones sold off around 350+ points from the time corn closed to the close of the Dow Jones.  $3.75 1/2 and then down to $3.72 3/4 should provide support this evening and tomorrow with an initial upside target of $3.90 1/4 to $3.94 1/4.  I expect a test of $4.07 1/2 if we can close the market above $3.90 1/4.  I expect corn to follow the Dow futures tonight until we get a better feel for things in the morning.  I feel there should be buy stops above todays high of $3.87 tomorrow.

 

MEAL
Dec '08 meal opened the day session slightly better than the overnight close.  The open was the low of the day for Dec '08 meal, it didn't look back.  If the Dec '08 meal contract closes above $279.20 then I think we could target $286.70 very easily.  I expect the meal market to open weaker tonight for the same reasons in corn, the Dow dropping around 350 points from the Ag close to the Dow close.  

Bottom line - I expect the meal market to continue is firm feel but it should follow the financial markets to some degree tomorrow.  I expect support to be $269.90 to $267.90 tonight and tomorrow but I feel $269.90 should hold assuming we don't have a global market meltdown tonight.  It feels like the market wants to test $286.70 this week but I still need to see a close above $279.20 before I will get that excited.  I expect early lows and late highs in the meal market tonight/tomorrow.

 

HOGS
Dec '08 hogs traded as much as $.77 lower today only to come back and close higher on the day by $.05.  Did  I mention the U.S. Dollar Index was making new highs for 2008 again today and hogs still rallied?  I will not complain!  I don't see how the Dec '08 contract can hold this little rally its had, I am not friendly the Dec '08 contract at all but it seems to stay firm.

Today we touched the 50% retracement level of $59.15 in Dec '08 hogs by making a high of $59.17 and then backing off the high by $.60.  I am expecting a lower day tomorrow in the Dec '08 contract because I don't like the chart and also the cash and cutout numbers were lower, cash down around $1.35 and cutout down $.91.

Bottom line - I expect Dec '08 hogs to trade lower tomorrow and touch possible support of $57.60 and then a possibility of $57.20 after that.  The resistance levels for tomorrow are $59.15 and $60.00; I don't think either of the resistance points will be tested tomorrow.  I expect a lower opening tonight and follow through into tomorrow's day session for an overall weaker day in hogs.

 

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
-----------------------------------------------------------------------
10/27        46.3      65.06   88.35   68.39  42.07  93.06 53.52  70.54
Change :               -0.91   -0.66   -0.16  -0.36  -0.97 -0.65  -3.31
-----------------------------------------------------------------------

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 :  1.37 lwr   :  1.57 lwr   :  1.62 lwr   :   .56 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 49.25-60.47 : 49.25-60.25 : 49.25-60.47 : 50.50-59.12
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    55.73    :    57.79    :    57.66    :    53.72
--------------------------------------------------------------------------
Head Count      :   21,159    :    7,179    :   10,516    :   10,413
==========================================================================

 

 

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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