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CORN – Sep '09 Electronic
Open – $3.46 1/2, High – $3.47 1/2, Low – $3.31 1/2, Close – $3.32 1/2 Down $.14 1/2
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "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.”
Sep '09: It didn't feel that great yesterday when it neutralized our feed corn positions and the market rallied into the close, today I was glad to be neutral. The weather still looks good for corn development even if it gets warm because it has been such a cool summer with ample moisture that we can use the heat. We closed well below the $3.40 number I spoke of yesterday and now the next downside target is $3.27 1/2 and then $3.15 1/4.
I want to stay on the sidelines for now until the market gives me something to hang on to. The close today was pitiful at best and would suggest a sideways to higher open tonight with just primes the pump for another push lower after some people take a stab at buying it and also some minor short covering. Once this business is out of the way the selling can begin again at this point. The USDA needs to reduce acres and keep yields in check on the Aug 12th report and/or have a forecast for an early frost before this market can have a sustainable rally.
I think the Informa number of final corn yield at 164 bu per acre scared a lot of bulls yesterday, myself included.
Bottom line: I am looking for the market to experience an early low tomorrow.
Sept '09 Corn – Support/Resistance for 08-07-09
(R3) Resistance 3: $3.40 1/2
(R2) Resistance 2: $3.38 3/4
(R1) Resistance 1: $3.35
Today’s close: $3.32 1/2
(S1) Support 1: $3.31 1/2
(S2) Support 2: $3.27 1/2
(S3) Support 3: $3.20 3/4
MEAL – Sep '09 Electronic
Open – $341.60, High – $342.00, Low – $332.20, Close – $339.50 Down $2.10
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "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.”
Sep '09 meal: The market made a low early in today and moved higher from there the balance of the day which is the exact opposite of what I was looking for. We are still neutral meal at this point and will monitor the market closely to look for signs of direction, right now those signs point to be cautious if you're long. The soybean market is having a tough time breaking as it makes a new low during the session and then it is bought back going into the end of the trading day, same applies for meal.
I am looking for meal to open mixed to higher tonight like corn and probably soybeans too and then meet resistance early. The market continues for the fourth session to respect the $338.30 support level on the close. If we close at this level or lower tomorrow I will not be overly friendly to the meal market at all because the weekly chart will look like it failed to secure higher prices. If this type of close does happen I would expect sell stops below this week's low of $332.00. We still need to see the market close before we can make this assessment.
Bottom line: I’m looking for the market to experience an early high and a late low tomorrow.
Sep '09 Meal – Support/Resistance for 08-07-09
(R3) Resistance 3: $346.50
(R2) Resistance 2: $343.90
(R1) Resistance 1: $342.00
Today’s close: $339.50
(S1) Support 1: $337.10
(S2) Support 2: $332.20
(S3) Support 3: $330.60
HOGS – Oct '09 GLOBEX
Open – $49.75, High – $49.75, Low – $47.20, Close – $47.575 Down $2.625
Thoughts – Long Term (into December) – Negative
Yesterday I said: "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?"
Oct '09 hogs: If you will notice my support levels now go five deep instead of three because I wanted to point out how little support there is below this market. The support is there it is just far away is all. If we close below $47.40 especially for the week I would say watch out for next week because we should move lower hard and fast. In my estimation the $2.23 lower cutout tonight probably put the nail in the coffin because in all reality who wants to step in front of this market and buy it.
The path of least resistance is lower, people are also scared so if they haven't already hedged they are more than likely faced with the decision do I exit the business or cut my losses? Emotions are in high gear if production is not sold yet and that can skew a market just like the funds can, however, I don't know how skewed this market is. Packers have little to no interest in buying hogs aggressively if at all. If we get liquidation ramped up and going full bore we should see additional pressure on the front month futures until everything runs its course.
I hate to say it but if cutout doesn't turn around fast, demand come to the market or the cash market pick up I believe we could see October '09 futures test the $39.64 area. The technical side of the market has very little support below today's market close. We have hedges in place and are now looking to buy out of the money call options to protect the equity that we have in our positions as well as provide upside in the market if and when this thing ever decides to turn higher. Don't look any further into buying calls than risk management; we are doing this because it makes our risk known.
I don't want to speak the market into moving tomorrow but I wouldn't be surprised to see another limit lower move in the Oct '09 contract tomorrow (that would put us at $44.57). We are limit lower in the Globex extended hour trade tonight (this is just continuation of the pit session today) with small pool orders offered limit lower.
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 08-07-09
(R3) Resistance 3: $49.50
(R2) Resistance 2: $48.625
(R1) Resistance 1: $48.35
Today’s close: $47.575
(S1) Support 1: $47.40
(S2) Support 2: $43.80
(S3) Support 3: $39.64
(S4) Support 4: $35.27
(S5) Support 5: $29.40
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