Hog & Corn Comments - 02-02-09 What goes up must come down I guess.

Published on: 17:28PM Feb 02, 2009

Hog Comments - 02-02-09 What goes up must come down I guess.

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Jeremy Knutson
CORN - March '09 Electronic
Open - $3.78, High - $3.78, Low - $3.63, Close - $3.70 1/2 Down $.08 1/2

The March '09 contract was obviously certain it didn't care about the $3.77 support area that I spoke of last week.  To re-cap, I said the market had support at $3.77 and if it failed to hold we could see the $3.59 area in the March '09 contract.  Today confirmed that thought when the market fell apart in the early part of the session and traded as much as down $.16 at one point to make a low of $3.63.

I am buying into this decline against my $3.60 puts that I have in place.  If I buy futures against my put options it turns them into a synthetic call option which gives me upside protection but has limited risk to the downside.  The march contract had recovery type trade after the first hour of trading was in the books today.  We made our low around 10:20 a.m. CST and moved higher from there.  The forecast remains wet for South America this week which is what lead to today's weakness on a fundamental front.

Bottom line - It looks like we need to get back above $3.70 1/2 and trade there for awhile if we want to make a run at $3.77 which went from support to resistance now.  As of this point I don't think March '09 corn will close any lower than $3.59, I think this support level will hold.  The market is still respecting the 50% retracement level (back to the $3.05 1/2 low on 12-05-08) of $3.67 1/4 and if we can stay above  this level we should have another run toward the recent high of $4.29.  I think we will have an early low tomorrow and a late high.  I look for resistance at $3.72 1/4 tonight and $3.78 if we can get things going.  Look for better trade tomorrow.

MEAL - March '09 Electronic

Open - $310.00, High - $310.00, Low - $299.60, Close - $306.20 Down $4.80

March '09 meal broke the $305.00 support level that I spoke of last week but yet again failed to close below it.  I actually liked today's trade action, we made new lows and buyers came back into the market and pushed meal above the $305.00 support level.  As I said last week we need to see a close below $305.00 if we want to see my target of $292.00 become reality.  We got below $300.00/ton today with a low of $299.60 but the market saw buying going into the latter part of the session.  

Bottom line - Like I said, I liked the way meal traded today and it warrants ownership of at minimum call options to cover meal needs.  I currently have call options on myself and will add to my position when the market tells me to.  Today gave a warning sign of a potential short-term bottom in March '09 meal.  I need to see the market close above $310.00 before I believe it.  I expect early lows and late highs tomorrow and I look for $309.00 to be resistance for the trade tonight and tomorrow.

HOGS - April '09 GLOBEX
Open - $62.60, High - $63.00, Low - $61.50, Close - $61.67 Down $1.30

We took back most of Friday's lovely gains today and closed below the 62% retracement level of Friday's range.  This would suggest a possible test of Friday's $60.70 low.  I don't think we have it in the market to get to this price level based on the way the market traded the later hours of the session today.  April slowed down and the ranges narrowed therefore making me thing we could make a move higher tomorrow.

I have the market on a cycle lower until 4:00 a.m. Tuesday morning and then working its way back higher.  This is all based on the intra-day 60 minute chart but is usually reliable as relaible can be in this business that is!  I still like the way the market traded and closed last week and I think we are finally beginning to get what I have been waiting for.  If the market can get back to last week's high of $64.70 we could see some buy stops above this level.  

Bottom line - the market is in an up cycle now until Feb 13th, 2009 but it isn't anything violent just a steady upward move.  This isn't a science so anything can happen but it meshes with what I see on the weekly chart although I need more confirmation before I say the April '09 hogs have bottomed.  I expect early lows and late highs tomorrow with a test of $62.00 to $62.37 likely.  Cutout was almost a non-event this afternoon and the cash report wasn't as bad as the noon report suggested it would be, typical really.  I'm looking for better trade tomorrow.

 NW_LS500 Des Moines, IA     Mon, Feb 02, 2009     USDA Market News  USDA NATIONAL CARLOT PORK REPORT as of:  3:00 P.M. Purchases equated to FOB Omaha Basis.  Compared to Friday's Close:         Fresh loins steady to weak; butts generally steady; sknd hams and sdls bellies 14-16 lbs not tested; lean trimmings steady to firm. Trading slow, with mostly light demand and light to moderate offerings.    ----------------------------------------------------------------- Loads PORK CUTS          :              36.0 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 ----------------------------------------------------------------------- 02/02        44.0      56.79   74.93   60.35  35.49 101.20 38.76  72.41 Change :               -0.15    0.54    0.61  -3.32  -0.13  0.09    unc -----------------------------------------------------------------------
 NW_LS831 Des Moines, IA     Mon, Feb 02, 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 :   .84 lwr   :  1.53 lwr   :  1.17 lwr   :   .34 lwr Negotiated      :             :             :             : CARCASS BASIS   : 42.50-62.00 : 47.50-61.49 : 46.00-62.00 : 42.50-60.81 185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg Plant Delivered :    57.67    :    59.10    :    59.69    :    54.31 -------------------------------------------------------------------------- Head Count      :   21,293    :    7,966    :   13,206    :    8,007 ========================================================================== 

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