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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 - 10-29-08 - Grains take off and leave hogs behind.

Oct 29, 2008

Hog Comments - 10-29-08 - Grains take off and leave hog behind.


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

CORN
I waited until the Dow Jones closed today before writing my comments unlike yesterday!  We had the perfect storm in the corn market today.  The U.S. Dollar basically crashed down over 200+ points for most of the day, crude oil was up $5.51 and the Dow Jones was all over the place waiting for the Fed's decision on interest rate cuts.  When Dec '08 corn closed today the Dow Jones was basically unchanged and then fell to 74 lower at the close of the Dow.  The Fed's did cut the rate by .50% which is what Wall Street was looking for and expecting.  Stocks made most of the daily range in the last hour of trade.

Dec '08 closed up limit today at $.30 higher and settled at $4.20 3/4.   The one thing I notice about days that we close toward our high is that we typically gap higher at the beginning of the next session.  If the market gaps higher tonight, I would expect some follow through buying and then some selling should surface.  I expect resistance at $4.27 3/4 tonight and then sell off some.  

Bottom line - I expect tonight's open to be neutral to lower and then find follow through buying.  I say lower because the Dow Jones sold off going into the close.  If we open lower I expect the market to find some buyers and then take us up to $4.27 3/4 before hitting resistance.  If $4.27 3/4 violated then the next level of resistance is $4.42 1/2.  I expect the market to respect $4.27 3/4 for resistance and $4.11 1/2 for support during tonight and tomorrows markets.  If the Dollar continues to crash and crude maintains its rally we could see better markets all day tomorrow.

 

MEAL
Dec '08 meal started its rally around 10:00 a.m. this morning and follow through for most of the day but had trouble holding a limit up bid at $286.80.  I was surprised we couldn't hold the meal market firm all day considering corn was up limit for most of the day.  

Bottom line - I expect Dec '08 meal to slightly lower tonight and then find buyers and rally toward today's high of $286.80 and if it really gets crazy we could go to $291.30 from Sunday nights high.  I don't think we will have a runaway market to the upside tomorrow like we did today unless we have the Dollar weak and crude oil strong again.

 

HOGS
Dec '08 lean hogs did very little again today with a trade range of $1.05 it was relatively quiet compared to corn, soybeans and the outside markets.  I don't understand why hogs have rallied when the Dollar was moving higher and now that it tanked today the market moves lower.???  After seeing the cutout number this afternoon I guess someone knew about it before it came out and that was some of the reason for the decline.

I have been saying for the last couple of commentaries that I didn't/don't like the Dec '08 hog contract and today's cutout number may prove me right.  Cutout was down $2.51 today which is a very large one day drop; cash was up slightly so the packer margin just tightened.  With the fundamental news we had today I don't think the contract low of $55.45 is safe any longer.

Bottom line - I expect Dec '08 hogs to be very weak tomorrow on the heels of tonight's cutout number.  I believe some of it was factored into today's trade but the balance will hit tomorrow.  Some to the buying over the past few sessions was short covering so we could see more selling come into the market tomorrow.  I expect a test of $56.60 which was today's low in the Globex pit and a probable test of the contract low of $55.45 either tomorrow or Friday.

 

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
-----------------------------------------------------------------------
10/29       117.9      62.66   85.45   66.05  46.36  88.97 47.94  69.18
Change :               -2.51   -2.86   -1.01   4.34  -3.89 -6.77  -1.46
-----------------------------------------------------------------------

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 :   .35 hgr   :  1.04 hgr   :   .75 hgr   :   .09 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 49.50-58.65 : 50.50-58.65 : 49.50-58.65 : 50.00-55.41
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    55.82    :    57.24    :    57.09    :    53.18
--------------------------------------------------------------------------
Head Count      :   23,966    :   13,336    :   16,165    :    7,621
==========================================================================

 

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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