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CORN – Sep '09 Electronic
Open – $3.54, High – $3.59, Low – $3.39 1/4, Close – $3.47 Down $.07 1/2
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "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.”
Sep '09: corn took another step back today after Informa projected that the USDA would use a 157.1 national corn yield for their Aug 12th report. This looked neutral to mildly friendly but then later on there was another notation that Informa projected a FINAL crop yield of 164 bu/acre on a national basis assuming weather is good for the remainder of the growing season. Needless to say that sent the market into a tizzy and we sold off to new lows on the day.
The close today doesn't help the charts look much better as we closed below $3.51 1/2 which is the 50% retracement level of Monday's move and is somewhat negative. We did however manage to hold support at the $3.40 level which is a 50% retracement level back to the $3.15 1/4 low we had on July 29th. Things could open up to the downside if we close below $3.40 but for now we are holding above this level. I neutralized our long feed corn positions today just below market close levels as I want to see how things play out tonight and tomorrow.
If the market were to close at today's level for the week it would be an ugly looking weekly chart and would suggest the upside move may be finished for awhile. I am not calling a top just yet because I want to see how we close on Friday but for now I am taking a cautious stance in the market and sitting on the sideline for now. If the market suggests that we should be long I will not hesitate to exit our delta hedges and continue with our core option position.
Bottom line: I am looking for the market to experience an early low tomorrow.
Sept '09 Corn – Support/Resistance for 08-06-09
(R3) Resistance 3: $3.61 1/4
(R2) Resistance 2: $3.57
(R1) Resistance 1: $3.50 1/4
Today’s close: $3.47
(S1) Support 1: $3.44 1/2
(S2) Support 2: $3.39 1/4
(S3) Support 3: $3.38
MEAL – Sep '09 Electronic
Open – $338.70, High – $343.90, Low – $333.10, Close – $341.60 Up $2.30
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "$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.”
Sep '09 meal: I am still cautious at this level and want a known risk strategy in place for upside protection. The market has given us warning signs saying the market may have made its move for the time being and needs to retrace. We haven't gotten any confirmation of this yet but I am skeptical the way things are setting up. We traded lower most of the day only to come back into the close of the session.
I delta hedged our $320.00 call options today so if the market does move lower we can keep the equity we have gained in the this position. The downfall is that I delta hedged around $334.20 near the low of the session which always feels good (insert sarcasm). For now I want the market to prove to me that it wants to move higher, the last couple of days have been warning signs of a top heavy market. Like corn if the market tells me differently I will reverse this delta hedge and get off the sidelines and back into the market. It looks to me like the market will drift lower tomorrow unless there are outside (crude oil, dollar, etc.) reasons for it to do otherwise. A warmer and drier 8-14 day forecast is helping keep premium in the soybean market.
Bottom line: I’m looking for the market to experience an early high and a late low tomorrow.
Sep '09 Meal – Support/Resistance for 08-06-09
(R3) Resistance 3: $349.20
(R2) Resistance 2: $346.80
(R1) Resistance 1: $343.90
Today’s close: $341.60
(S1) Support 1: $338.50
(S2) Support 2: $335.20
(S3) Support 3: $333.10
HOGS – Oct '09 GLOBEX
Open – $49.85, High – $50.85, Low – $47.625, Close – $50.20 Up $.075
Thoughts – Long Term (into December) – Negative
Yesterday I said: "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."
Oct '09 hogs: Today was one of the friendliest trading sessions we've had in recent weeks. The Oct '09 contract opened lower and traded lower early in the session and was down as much as $2.50 on the day before we got a rally that brought the market back up into the marginally lower category and eventually closing slightly higher on the day. The problem is this is what I expected to happen today, an early low and a late high as the day progressed. I didn't expect the moves to be as volatile as they were.
So now that we got this rally out of the way what is next? It was rumored today from a couple of different sources that Russia came to the market and bought some pork, however, I can't confirm the story so I will act as if it didn't happen until I can confirm it. The Oct '09 contract made what looks could be in a normal year a bottom type formation today BUT it is very premature to even consider this. If it were a bottom we would expect some buying above today's high of $50.85 tomorrow. I am not holding my breath.
The media is looking to bring H1N1 back into the lime light not because we have new problems but more of the fact that kids will be going back to school soon and we should see the cases pick up. Per a Reuters news story (click here for story) "U.S. Homeland Security Secretary Janet Napolitano told a newspaper this week that the flu will flare up after schools open in the fall and there will not be enough vaccine early in the flu season." The hog market is not strong enough to handle another bout of negative news on top of the already beaten down prices.
Under normal circumstances I would look at today as a friendly day to the market and look for some follow through to the upside tomorrow but when you have packers unwilling to give bids for almost two weeks out it is kind of hard to jump on an ordinarily bullish setup. Oh, buy the way cutout was down $1.76 today, what else is new?
Bottom line: I’m looking for the market to make an early high tomorrow and weaken as the day progresses.
Oct '09 Hogs – Support/Resistance for 08-06-09
(R3) Resistance 3: $52.00
(R2) Resistance 2: $51.50
(R1) Resistance 1: $50.675
Today’s close: $50.20
(S1) Support 1: $50.10
(S2) Support 2: $49.32
(S3) Support 3: $47.40
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