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CORN – Sep '09 Electronic
Open – $3.51 1/2, High – $3.61, Low – $3.49, Close – $3.56 1/2 Up $.02
Thoughts – Long Term (into September '09) – Bullish/Higher
Yesterday I said: "The USDA does it again, they found just over 2 million more corn acres than what the intentions report said at the end of March. This number was even bigger to the trade, which had the number pegged at 1 million less than the March report! Needless to say, the market made a move lower right off the open, then traded limit and stayed there for the balance of the day.
"There were a couple of times throughout the trade session where it looked like we were going to trade off of the limit lower number of down $.30, but there was just too much pressure. We blew through the $3.80 support level that I was looking for and went all the way through the next level at $3.63 1/4. The close we had tonight sets up a buy signal IF the market opens lower, and then it will trigger a buy stop signal at $3.55. If the stop is filled, a risk management sell stop should be placed $.01 below the most current low.
"I am interested in this signal because the market had already fallen significantly prior to the report, so I would say some of today's bearishness is already factored into the market. I don't believe this signal will provide a blow and go type reversal, but with the hog industry in the state that it is, I want to make sure I have good coverage for feed needs at lower levels in the market if it will allow us to do so.
"I am not a big fan of straight futures at this level because the report was bearish, but I am extremely interested in a known risk strategy to get coverage in place for feed. If you need feed coverage, now is a GREAT time to be looking into getting some coverage on. Talk with your broker about a strategy that is good for you and your operation.”
Sep '09 corn: The market responded to the potential buy signal I spoke of yesterday, although I would have liked a stronger close than what we had today. I said the signal was at $3.55, so let's say that we are long futures at $3.55 for now and we will follow this trade as if we have it in place. This is the same signal that generated the buy in meal last week that we followed.
I didn't buy futures today to go long the market, but I did buy an August '09 $3.55 call and sold a Sept '09 call for $.07 1/2 to bridge the gap between where the market currently sits and my other call options, which are above the market. I also lifted some futures that I sold at $3.88 1/4 last Friday to neutralize my long options position in corn. We had over $.30 in this "delta hedge," so I lifted that position this morning to keep that equity and apply it against our long call positions that lost value when the market dropped yesterday. This was the sole purpose for the short futures.
I had a stop order below the market all day in case I was wrong to lift these short futures, but thus far it hasn't been hit. The crude oil market was down around $1.30 or so when the grain markets closed and has since rallied to be down only $.50, which should provide some support to this evening's trade in corn. At this point, the Sep '09 corn contract closed above $3.55, which was 50% of today's trade range, therefore giving me reason to believe we should make another run toward $3.61 tonight or tomorrow. If we manage to close above that level, we should see more buying enter the market.
Don't get me wrong, I don't think we are going to blow and go, I am just respecting the buy signal the charts have given us and will wait for it to tell me something different. The report yesterday was indeed bearish to corn, but now that one can argue it has been traded, we will go with the flow of the market and begin to look for something else to move the market, and that would be weather. I have seen more reports about a dry system moving through the corn belt in mid-July, although I haven't seen anything in the way of major heat. This will develop through the weekend, which should keep the downside of this market controlled going into the long holiday weekend.
Bottom line: I am looking for the market to experience an early low tomorrow.
Sept '09 Corn – Support/Resistance for 07-02-09
(R3) Resistance 3: $3.62 3/4
(R2) Resistance 2: $3.61 1/4
(R1) Resistance 1: $3.57 3/4
Today’s close: $3.56 1/2
(S1) Support 1: $3.54 1/2
(S2) Support 2: $3.42 3/4
(S3) Support 3: $3.35 3/4
MEAL – Aug '09 Electronic
Open – $375.90, High – $390.00, Low – $375.80, Close – $384.20 Up $9.90
Thoughts – Long Term (into September '09) – Bullish/Higher
Yesterday I said: "The trade that we have been following for the last few days would have finally been closed today as the market did touch the $367.00 area and move lower, so if we were in the trade (I wasn't because we own calls) we would have been stopped out today around $367.00 in the August contract. The trade was entered around $352 and exited around $367 for a nice gain and now I would like to see the August '09 close above $380.20 for two consecutive days before I would look to re-own it on a rally. This is not a recommendation; we are just following some signals, so please do what is right for your operation.
"The meal market was the strongest link in the grains today as the USDA projects 1.46 million more acres than the March intentions report, but they were about 600,000 less than what the trade was expecting; therefore it was a friendly report on soybeans. As I said before, I need to see the Aug '09 contract close above $380.20 before I get too excited about a test of the old high of $397.00. The weekly chart still looks poised to follow through to the upside from here.”
Aug '09 meal: It didn't take long for the first close above $380.20 to come. As I mentioned yesterday, I wanted to see the Aug '09 meal close above $380.20 for two consecutive days before I got excited about getting long the meal market from a futures perspective. I will need to see the market hold the $380.20 support level for now and look for a signal to buy the market. We currently have call options on, so we will not purchase futures at this time but will follow the charts to see what they tell us.
As I mentioned yesterday, the weekly chart is poised for follow-through to the upside and it is holding true to form after today's runup. I don't see anything at this time that suggests I should be completely on the sidelines in meal. We will continue to hold known risk strategies on meal until we see reason to do otherwise. I am looking to take back some gains early, but I think the market will be strong going into the long weekend, with talk of a possible dry forecast for mid-July.
Bottom line: I’m looking for the market to experience an early low and a late high tomorrow.
Aug '09 Meal – Support/Resistance for 07-02-09
(R3) Resistance 3: $393.50
(R2) Resistance 2: $390.00
(R1) Resistance 1: $387.20
Today’s close: $384.20
(S1) Support 1: $383.10
(S2) Support 2: $380.20
(S3) Support 3: $375.80
HOGS – Aug '09 GLOBEX
Open – $59.60, High – $61.175, Low – $59.50, Close – $60.70 Up $.05
Thoughts – Long Term (into August) – Friendly
Yesterday I said: "The August '09 contract got a burst of buying today as end of month and end of quarter buying surfaced in the market. This was needed to some degree to allow the market some room to absorb another stellar day in the cutout market. Yes, you guessed it, down $1.72. The news was released to the public at about 3:13 p.m. CST and the market immediately dropped off but found some support around $59.80.
"The August contract had good volume today and has increased in recent days while the open interest has decreased, which suggests this is a short covering bounce for now. The Aug '09 contract closed at $60.65 today, which is above the $60.30 resistance area or the 62% retracement back to the $62.15 high from two weeks ago. This needs to happen again tomorrow if we have any shot at testing $62.15, otherwise we may look for another move toward the lows.
"My hourly cycle indicator has an early high for tomorrow with the market setting back some as the day progresses, and with this afternoon's cutout number being down as much as it was, it only stands to reason."
Aug '09 hogs: I have to say I am impressed with the firmness of the hog market. I said yesterday that the open interest was on a decline and volume was moving higher, which means someone is exiting the market, although I don't know who. Index funds were thought to be buying today, which helped fuel the rally into the close of the day session, which is impressive considering the cutout was down $1.72 yesterday.
We did get word per Reuters today that Russia has removed some of its ban of U.S. pork products, but this news was published prior to the market open this morning, so I can't say the rally was a direct response to the Russian news. The Russians said they will now REMOVE the ban from the following states: Connecticut, Massachusetts and Michigan. They will also take SOME pork products from Florida, Illinois, New Jersey, New York, Pennsylvania, Texas and Utah, but they WILL NOT import live hogs or uncooked pork products from these particular states.
I said yesterday we needed to close above $60.65 today in order to test the high of $62.15 from two weeks ago, and we got it. I believe this is the market's next target area to test before it finds strong resistance. The Russian news should help to some degree, but we still need China to come back to the table and for Russia to take all U.S. pork products again.
I have to mention what has been on my mind for the last couple of days. The index funds are long approximately 55,000 contracts of hogs (historical maximum was around 125,000 long positions at one time) and were net buyers of 2,400 contracts last week per the CFTC, and the commodity (regular) funds are short around 26,000 contracts, which is a record short for the commodity funds. I find it interesting that the index funds are building a long position; however, they are long-term position traders and the commodity funds are record short and were net sellers of around 1,000 contracts last week.
This is my food for thought question: If there is a fundamental reason for the market to rally (Russia and China lift import ban plus the dollar is much weaker than before the ban was placed), who are the commodity funds going to buy futures from? Who is going to be the willing seller so the funds can exit their short positions? It is almost like the index funds are going to end up cornering the market and make life difficult for the funds for a few days. I don't mean that it is planned, but it could end up that way. The bottom line is we could have a rip-your-face-off rally when the market has reason to do so.
I am more impressed with the market today than I was two days ago, but I am still skeptical. We need some good weekly closes before I get excited. Demand is still the key to turning this market around and Russia gave us a little hope today, but we have a long way to go. Assuming cutout is not down over a dollar tonight, I would expect the market to retreat early and look for support around $60.35 and then try to firm from there.
Bottom line: I’m looking for the market to make an early high tomorrow and weaken as the day progresses.
Aug '09 Hogs – Support/Resistance for 07-02-09
(R3) Resistance 3: $62.15
(R2) Resistance 2: $61.35
(R1) Resistance 1: $61.175
Today’s close: $60.70
(S1) Support 1: $60.35
(S2) Support 2: $60.15
(S3) Support 3: $59.50
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