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CORN – Sep '09 Electronic
Open – $3.55 3/4, High – $3.61 1/4, Low – $3.52 3/4, Close – $3.54 1/2 Down $.03 3/4
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "Wow, I didn't expect to see the market up as much as it was overnight nor was I looking for near limit up trade during the session. Volume was huge today compared to what we have been experiencing so there was some force behind today's move. The market was the benefactor of "outside money" coming into the market place buying what they could. The Crude oil futures were trading over $2.00 higher for most of the day and the U.S. Dollar Index took another dump today and breached the low set in December of 2008. I don't have much good to say about the U.S. Dollar Index because if are trading below 77.90 as of the market close on Aug 14th then I am looking for a challenge of the ultimate low in March 2008 at 70.69.
Back to corn, we had an extended move higher and in doing so took out last week's $3.61 high. If the market closes above $3.61 this Friday then I would look for more upside next week but for it will provide resistance and if we trade above it on a daily basis for a period of time this week it should work as support to the market. This week will tell us much more about the market based on the longer-term charts. If the Dollar continues to slide we could continue to see the "outside money" come into this market despite what our fundamentals say. It is amazing how one day we can be talking about how much corn is out there and the next day nobody seems to care, at least for now.
I said on July 22nd when the USDA announced their "update" on planted acres that I strongly suggested owning call options through the Aug 12th report until we know more about these "updates". I am still of the opinion that it is wise to have a known risk position in place to protect against higher prices prior to this report on the 12th because the USDA has been full of surprises the last 12 months. FCStone will be releasing their August crop survey this afternoon which will be our first look at the corn yield number and it is expected to compare to the 2004 crop year. FCStone will be the first private group to release what they think the USDA's FINAL yield should show. The FCStone corn yield projection this afternoon was 160 bu/ac for a national average. If we didn't have outside money in the market today I don't think we would have traded like we did today knowing this report was just around the corner.”
Sep '09 corn: I don't have much to update on corn today, we had some fund selling today but with the market closing at the level it did off of a big day like yesterday, the potential for corn futures looks positive for the time being. We had good volume again today however it wasn't as much as yesterday's. I am looking at today as a pause allowing the trade to catch its breath from yesterday's big move.
I am still of the opinion to have some type of call coverage in place going into the Aug 12th, USDA report. The U.S. Dollar Index was very quiet today trading marginally higher for most of the grain session today. FCStone had a 160 bushel national average yield in their report last night but there was also another private firm that was near 155 for an average. Informa will release their numbers tomorrow morning around 10:30 a.m. CST and it should give the market something to talk about.
Bottom line: I am looking for the market to experience an early low tomorrow.
Sept '09 Corn – Support/Resistance for 08-05-09
(R3) Resistance 3: $3.64
(R2) Resistance 2: $3.61 1/4
(R1) Resistance 1: $3.57
Today’s close: $3.54 1/2
(S1) Support 1: $3.52 3/4
(S2) Support 2: $3.50 1/2
(S3) Support 3: $3.47 1/2
MEAL – Sep '09 Electronic
Open – $339.20, High – $343.60, Low – $335.20, Close – $339.30 Up $0.70
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "We gapped higher than the downward trend-line when we opened the overnight session last night and have been trading above the 62% retracement level of $338.30 and are now treating it as support. If this level holds tomorrow as well then we can look for a test of $371.00 in the near future with a pit stop at $355.70 first. Again most of today's rally is attributed to the outside money coming into the market as a result of beneficial outside market action.
I am still of the opinion to have a known risk strategy in place to protect yourself from higher prices and hold this position into the Aug 12th crop report. This market looks good and poised to test its 2009 high of $371.00, however, we gapped higher last night and also for the week which typically happens at the end of moves in the market. We also had a weak close today giving up most of the day's gains which signals a POTENTIAL exhaustion of this move. I am not calling a top but if the market trades below $332.00 tomorrow we could see some sell stops trigger.”
Sep '09 meal: $332.00 support held today so we didn't see the sell stops trigger that were more than likely below the $332.00 price level. Today had no significant meaning on the charts other than it still provides a level of caution based on how the Sep '09 contract traded yesterday. The market seems comfortable for now in within the range of Monday's price action and again we are trading above the downward sloping trendline off of the $371.00 so the trendline resistance now becomes support.
We closed above $338.30 today which still points to $355.70 and then $371.00 if the market gets moving again. I still think upside coverage is warranted at these levels via a known risk strategy especially going into the Aug 12th USDA report. Who knows what they will come out with and how it will affect the market.
Bottom line: I’m looking for the market to experience an early low and a late high tomorrow.
Sep '09 Meal – Support/Resistance for 08-05-09
(R3) Resistance 3: $349.20
(R2) Resistance 2: $343.90
(R1) Resistance 1: $342.20
Today’s close: $339.30
(S1) Support 1: $336.60
(S2) Support 2: $335.20
(S3) Support 3: $332.50
HOGS – Oct '09 GLOBEX
Open – $51.60, High – $52.575, Low – $49.625, Close – $50.125 Down $1.925
Thoughts – Long Term (into December) – Negative
Yesterday I said: "As you may have noticed I have switched from talking about the Aug '09 contract to the October '09 contract because the August contract is going to be responding solely to the cash market soon and provide little in the way of hedge protection. The recent bounce in the feed grains and the additional declines and new contract lows in hogs should further weigh on producer finances and might be what is needed for the industry to finally get a flush of liquidation which is about the only thing that is going to save this market unless we get some major export business moving product again.
The cash market seems to be at a near standstill which doesn't bode well for the front month futures months. If producers didn't get some hedge protection in place when the market rallied into the middle of July and the feed grains fall into early last week then there must be some sick stomachs out there again which could end up being the last straw for some guys. Nobody ever wants to see anyone go out of business other than on their own terms but the way the market is moving now some people may not have a choice in the matter which is sad.
With the feed grains moving higher and the hog market moving lower I am still of the opinion to keep hedges close to the front of the curve because of the potential liquidation that may occur. We rolled all of our hedges from August futures to October futures last Friday and will stay in this month for now until we have reason to do otherwise. I wish I could say we are in a bottoming process in hogs but that would be a lie. If the October futures make new lows and close below the $51.75 area in the October '09 contract then we could see another leg lower in the Oct '09 futures.
The ONE bright spot I see for Oct '09 futures is the potential for a CONDITIONAL buy signal if the Oct '09 futures make new lows below $51.75. If indeed we do make new lows then a buy signal would be generated at
$58.00 $52.00 on a STOP only with a protective risk management stop $.50 below the most recent low at the time the buy stop is filled. I don't know how much confidence I have in this potential signal because of the negativity in the cash market and the lack of cutout enthusiasm. I will monitor it but I will not partake in this trade on an aggressive basis but if it is confirmed then MAYBE we will adjust hedge positions with out of the money call option or something of that sort.
Cutout was down $1.01 this afternoon but I believe some of today's trade action was factoring in today's lower cutout number. I will be watching the potential buy signal tomorrow but I am very skeptical at this point."
Oct '09 hogs: I talked yesterday about a conditional buy stop signal being generated if the market makes new lows below $51.75, which it did. The signal was at $52.00 on a buy stop and the risk management sell stop would have been $.50 below the current low at the time of the buy stop fill. If you notice above I made a mistake when I posted yesterday's comments, I said the buy stop would generate at $58.00 when I actually meant $52.00.
If this order would have been executed we would have bought Oct '09 hogs at $52.00 and then would have put a protective risk management stop $.50 below the current low at the time the buy order was filled. The low was $51.52 so that means the sell stop would have been placed at $51.00 and obviously would have been stopped out for a $1.00 loss on the trade. If you will notice I said yesterday that I wouldn't partake in this trade because of all the uncertainty in the industry right now.
I am not impressed by today's action as it gives us no reason to believe a bottom is near. We broke through the contract low and closed below it and if we close below $51.75 again tomorrow then I would say we are in for another leg lower in the Oct '09 contract with a potential target of $47.40 before we find some support and if we manage to close below that number then things could really get ugly, I mean 2002 ugly. I hate to say it but the Oct '02 contract left a gap at $39.625 in September of 2002, this is not a projection point yet but if we close below $47.40 this concept has much more merit.
Pork cutout was up $.23 today and the cash market was lower with more negotiated hogs moving. The market did sell off after the day session closed and printed a low of $49.32 in the Oct '09 contract extended hour Globex trade. We need to get demand going before this market turns around. As I have mentioned before this may be the washout that the industry needs to get the required sow liquidation to turn the market around via lower supply to meet lower demand. Hogs moving lower each day and feed grains moving higher like they have doesn't bode will our industry, not that it's any secret.
Bottom line: I’m looking for the market to make an early low tomorrow and firm as the day progresses.
Oct '09 Hogs – Support/Resistance for 08-05-09
(R3) Resistance 3: $51.45
(R2) Resistance 2: $51.10
(R1) Resistance 1: $50.75
Today’s close: $50.125
(S1) Support 1: $49.625
(S2) Support 2: $49.00
(S3) Support 3: $47.40
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