Hog & Corn Comments - 01-26-09 - Grains shaky at best, hogs down again.

Published on: 16:14PM Jan 26, 2009

Hog Comments - 01-26-09 - Grains shaky at best, hogs down again.

Jeremy Knutson
[email protected]

CORN - March '09 Electronic
Open - $3.93 3/4, High - $4.02 1/2, Low - $3.83 3/4, Close - $3.93 3/4 Up $.03 1/4

More of the same today for March '09 corn, we open with strength but can't seem to keep it going throughout the trading session.  The weather is still traded based on forecast over the actual event so it seems.  With that being said some weathermen  had more moisture in their forecasts than others until the noon update, then there were several that changed theirs to wetter as well.

I haven't changed my mind about corn since my last posting; I am still looking for a short-term correction down to the $3.59 area.  The charts AGAIN gave a warning signal today if you are long the market; I am out of my feed positions other than a call option on 22% of needs.  I DO want to own corn for the long term but I don't want to at these levels, I think we will have a better opportunity to own it cheaper.

Bottom line - It looks like we should see March '09 corn move lower tonight and test $3.90 3/4 to see if we have support.  If there isn't any support at this level then our next stop will be $3.87 and then $3.83 3/4.  I would not be surprised to see $3.83 3/4 tested either tonight or tomorrow, so once again weaker trade is expected for tomorrow.


MEAL - March '09 Electronic
Open - $320.40, High - $325.00, Low - $309.90, Close - $316.30 Down $2.00

March '09 meal didn't catch fire early in the session like soybeans did, on its high the market was only up $6.70 which was during the first hour of trade.  Soybeans however got as much as $.32 1/2 higher during the first hour of trade.  Meal only made it 33.5% of the way to its limit move and soybeans made it 46.5% of the way to its limit.   Meal was a flat out lager today.

Crude oil was both up and down fluctuation $3.39 from high to low.  The enthusiasm was during the morning hours of trade and then crude backed off in conjunction with the Dow Jones.  The U.S. Dollar was weaker today down over 80 points for most of the day which in theory is good for commodity prices.  Most of the volatility today came from weather forecasts as I mentioned in the corn comments above. The March '09 hasn't proven it yet but the action we had today is similar to that of a top in the meal market.

Bottom line -   I still need some confirmation to call a top but I liquidated the remaining few contracts of meal I had and purchased some March '09 $290.00 puts to buy futures against if/when the market drops to those levels.  A long put and a long future is called a synthetic call option where it works near the same as a call option.  If we are comfortable with the market and think it's moving higher we can salvage some cost of the put option and still have our long futures in place.  If you are straight long a call option you have to keep it in place and let the market move through the entire premium you paid before your call begins to return you intrinsic value.

HOGS - April '09 GLOBEX
Open - $64.70, High - $64.70, Low - $62.70, Close - $62.775 Down $1.62

April '09 hogs didn't have a very good day AGAIN today closing down $1.62 at $62.77.  I said in Friday's comments (which I posted Saturday morning) that we needed $64.02 to hold support but the market fell short of that today.  April hogs broke support and kept moving lower without looking back.  I would like to see the market move back above $64.02 tomorrow although it would be a very healthy move higher if it did.

I have been waiting for this market to bottom so we could hedge on a bounce, we haven't seen it yet.  We have now broken below a support level by a significant amount and I will be looking to place hedges (via put spreads) on hogs that need to go to town in the near future.  I still believe the market is looking for a bottom and once the selling runs out we could see a nice pop in the market but the question is evident.  When?

Bottom line - a majority of the downward movement came in the first hour of trade today.  The hourly session's ranges became smaller as the day moved on therefore slowing down.  I expect some better trade tomorrow with a possible run at $63.70, the 50% retracement level of today's trade range.  I say this with the assumption there will be nothing crazy going on in the cash market tonight.  Better trade is expected in the April '09 futures for tomorrow. 

  ----------------------------------------------------------------- Loads PORK CUTS          :              48.0 Loads TRIM/PROCESS PORK  :               8.0 -----------------------------------------------------------------  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 ----------------------------------------------------------------------- 01/26        56.0      57.75   75.69   62.69  36.67 100.40 40.50  72.90 Change :               -0.06    2.15   -0.41  -2.29  -0.61 -0.43  -1.22 -----------------------------------------------------------------------
 NW_LS831 Des Moines, IA     Mon, Jan 26, 2009     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 :  1.11 lwr   :  1.25 lwr   :   .89 lwr   :   .62 hgr Negotiated      :             :             :             : CARCASS BASIS   : 44.00-62.16 : 44.00-62.16 : 44.00-62.16 : 44.00-59.00 185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg Plant Delivered :    57.50    :    59.07    :    59.56    :    54.91 -------------------------------------------------------------------------- Head Count      :   24,405    :   10,407    :   13,319    :   10,554 ========================================================================== 


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