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Corn – I wrote last week that corn may have topped and I continue with this opinion this week. The last three trading days have sent warning signals to us saying be careful if you are long. I know that just about everyone is thinking this Russian drought is going to be a huge deal or is at least talking it up to support their position in the market, but I disagree. I say I disagree and I mean that from a long-term problem perspective, can prices shoot higher in the short-term? Sure, anything is possible, however, I think the high has been set for wheat.
There was more news today out of Russia that they will halt exports through June 30th, 2011 instead of the original planned date of December 31st 2010. They also lowered output because of the drought and after this news broke the market rallied only to sell off prior to the close. I could be all wet in my thinking, which wouldn’t be the first time but we had a low of $4.72 3/4 in Dec ‘10 Chicago wheat during the week of June 7th, 2010 and we place a high of $8.68 last week, that is a $3.95 1/4 rally from low to high. It looks to me like this drought has been factored in considering we’ve sold off on "price friendly" news the past two days.
Corn was firm today for most of the session but Thursday’s trade activity still stands out in my mind. I think the Dec ‘10 contract has topped and we have room to move down toward the $3.91 area basis the Dec ‘10 contract over the coming weeks.
Hog margins still work (obviously this varies by individual and pricing structures) with corn at these levels so if you are selling hogs MAKE SURE YOU LOCK IN YOUR CORN! It doesn’t matter where the price goes if you lock in all of the variables that make up your profit margin.
As always make business decisions and develop a risk management plan that will protect the equity that you have in your livestock production. Find someone that you trust and work with them to develop a plan!
Bottom line – The intraday charts suggest corn makes an early high tomorrow. Now is a good time to work with your risk manager to help develop a coverage strategy that fits your operation if you are making hog sales.
Meal – Last week I said there was a sell signal on the weekly Sep ‘10 meal chart at $300.00 and that is still in play for this week. It looks to me like meal is getting to a make or break level as we have approach our old high of $310.50 but have failed to make a new high. I’m leaning toward the downside in meal right now based on the weekly sell signal because if it is a good signal it is a nasty signal. If you are selling hogs and you have profit in them based on the corn and meal prices of today then don’t pay attention to my thoughts on meal or corn price direction, just lock in the profits and walk away.
If you own call options in place of cash purchases now would be a great time to set downside targets to lock in your meal assuming we get a move lower in the coming weeks. $283.00 Sep ‘10 meal is a target that I think the market could shoot for as it looks for fresh information and direction. Now is a good time to visit with your risk manager to develop a meal coverage plan that is right for you.
Bottom line – The intraday charts suggest meal makes an early high tomorrow.
Hogs – The downward movement we’ve had in the Oct ‘10 hog contract over the last few trading days has been concerning to me to say the least. We left a gap $75.95 on Friday morning it has been relatively odd to see gaps in the hogs because the market trades for twenty three hours a day and has much more time to fill those gaps than what they used to. We had a buy signal in the Oct ‘10 hogs today at 73.75 with a protective risk management sell stop at $72.75. It looks like the Oct ‘10 hogs have done enough to the downside for now but I’m not putting a lot of optimism behind my comments because I think we can rally but I think the rallies should be sold and likely will be sold.
I think we have enough enthusiasm to fill the gap that we left at $75.95 but I think that could be it for now. If you don’t have margins locked in for a relatively substantial amount of time I would suggest talking with your risk manager about a plan to make some "catch up" sales on the next bounce. I’m of the opinion that the U.S. Dollar index has bottomed for now and should try to make its way higher through the end of this month. I expected a much larger sell off in the dollar once it broke the 81.45 support level but it failed to do so. A rally in the dollar will not help commodity prices at these comparatively inflated prices.
I think we all better put our horns away for the time being and make SOUND business decisions. As I’ve said many times in the past, IT’S OKAY TO BE BULLISH, JUST DON’T BE STUPID! Yes, I will take the advice myself. : )
Keep making business decisions and protect profits where you can.
Bottom line – The intraday charts suggest hogs make an early low tomorrow.
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