Hog & Corn Comment - 12-11-08 - Bullish trade for corn on a bearish report. Is the market telling us something?

Published on: 17:19PM Dec 11, 2008

Hog Comments - 12-11-08 - Bullish trade for corn on a bearish report. Is the market telling us something?

Jeremy Knutson
[email protected]
Open - $3.41 1/4, High - $3.57 3/4, Low - $3.38 1/2, Close - $3.51 1/2

March '09 corn was called 10-20 lower this morning on a bearish monthly crop production report put out by the USDA.  The 2008-09 carryout number increased from 1.124 billion bushels on Novembers report to 1.474 on today's report which was above the average trade estimate of 1.232 billion bushels.  The market has moved down so far that this news just didn't seem to matter today.  Again, as I said the other day we had a good volume day on Monday when the market was initially up strong and has since followed through.  

I don't think we are off to the races but if the U.S. Dollar Index keeps fading as fast as it has this week I am more and more certain the bottom is in for corn.  We have not violated a prior day low since last Friday's sell off.  When looking at the weekly chart this trade action is quite friendly in my opinion, we are taking back all of the losses we were dealt last week as a market.  If I remain friendly I need to see the market close above $3.40 tomorrow but preferably up around the $3.50+ area.  

Bottom line - I think the market will open slightly lower tonight and then make a small charge higher but I don't think we will take out today's high of $3.57 3/4.  I think tomorrow could be a profit taking day for the market and all of those who got in on Monday and are still in.  Outside of a meltdown tomorrow this week has been a big positive on the charts for continuation to the upside.  We need a close above $3.40 tomorrow for me to be very confident.  I expect a test of $3.45 3/4 to $3.48 tomorrow and we should find support in that area. 

Open - $248.30, High - $257.20, Low - $245.10, Close - $256.30

Jan '09 meal struggled on the early on today because at 10:30 a.m. it was trading below where it opened (the day session open).  80% of the time the market will close the day in the direction of the first hours price action, which was negative this morning meaning statistically we should have closed below $250.60 (this is the day session open, the open listed above is from the electronic open from last night) but we failed to do so.  This is a positive sign as well.

Bottom line - I expect meal to retrace back to $252.40 to maybe even $251.20 before we find good support.  It looks like Jan '09 meal will be the same as March '09 corn tomorrow, I am looking for some position evening going into the weekend.  Also like the corn chart the weekly chart looks awfully friendly if we have a close above $250.00 in my opinion.

Open - $62.20, High - $62.60, Low - $61.55, Close $62.37

Feb '09 hogs blew through my $63.00 support level I talked about the other day.  I thought we would see support at $63.00 but it failed to hold.  We had support this morning at $61.60 and the low was $61.55 so we touched it, held and firmed into the close.  The very weak U.S. Dollar Index didn't seem to have an effect on the hogs today or much of this week for that matter.  I think it is only a matter of time before it all sinks in.  

As I have said before I am not bearish hogs (or corn or meal) at these levels and if you are short futures I would cover them with a call option to protect any equity you may have gained.  I am still looking for the market to bounce back toward the $67.00 level in Feb '09 but ultimately reach the mid/lower $70's in the coming months.

Bottom line - the cash was weaker today and cutout regained some of its loss yesterday by closing up .21 for the day.  I look for support tonight/tomorrow around $62.05 to $61.95 and then bounce from there.  The weak dollar is going to buoy prices at some point so be prepared if you have a major short position.  I am not saying lift hedges but cover your gained equity with a call option or some other means of protection.  I think we could make new highs above $62.60 during tomorrow's trade.


 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 ----------------------------------------------------------------------- 12/11        52.5      60.27   73.11   67.81  36.62  87.80 55.25  70.63 Change :                0.21    0.44   -1.47  -4.55  -0.03  2.69    unc -----------------------------------------------------------------------
 Des Moines, IA     Thu, Dec 11, 2008     USDA-IA Dept of Ag Market News  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 :   .82 lwr   :   .71 lwr   :   .69 lwr   :  1.10 lwr Negotiated      :             :             :             : CARCASS BASIS   : 44.50-55.25 : 46.00-55.25 : 46.00-55.25 : 44.50-55.03 185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg Plant Delivered :    53.69    :    53.50    :    53.77    :    53.50 -------------------------------------------------------------------------- Head Count      :   20,327    :    7,373    :   10,851    :    8,726 ========================================================================== 



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