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CORN – Sep '09 Electronic
Open – $3.24, High – $3.29, Low – $3.23 3/4, Close – $3.26 1/2 Up $.02 1/4
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "To my surprise Sep '09 corn mounted more of a rally today than I thought was possible but it failed to hold going into the close of the day session. The weather remains favorable for corn growth but again the wild card is the USDA crop report due out at 7:30 a.m. CST this Wednesday the 12th. As I have said for the last couple of weeks now, I believe the corn market warrants some call coverage going into this report if you don't have any feed needs covered.
The number on Wednesday morning should give the market further direction from here because if the acres stay relatively the same we will probably experience a sell off due to what has been labeled as good growing weather for corn. If acres drop and yield isn't raised too much then we could see the market stabilize in this area and hold some premium in the event we were to get an early frost or at least some talk of one.
At this point I wouldn't want to be uncovered with feed needs nor would I want to be completely covered (via cash or straight futures) at this point. I think you need some wiggle room going into this report because the USDA seemingly likes to surprise us.”
Sep '09: I don't have much to add to yesterday's comments as today was mostly position squaring going into tomorrow's much anticipated USDA report. My guess is the corn acres will be reduced by a margin less than what they were increased in the June 30th report. To offset most of the acre reduction I think the yield will be increased (because Mother Nature says so not because of USDA fun and games) and feed and residual usage will be reduced.
As of today I exited any delta hedge we had on our long corn calls but we still have some $3.10 Sep '09 puts to help offset any losses we may incur from our short $3.20 Dec puts. The reason for exiting our delta hedge was 100% risk management and 0% market bias. We need to have corn coverage in place if the report is bullish and this is the major reason for exiting the short futures against our long calls (delta hedge).
Bottom line: I am looking for the market to experience an early low tomorrow but the USDA report released at 7:30 a.m. CST will give direction to the day's trade and trump any indicators I may have.
Sept '09 Corn – Support/Resistance for 08-12-09
(R3) Resistance 3: $3.34 1/2
(R2) Resistance 2: $3.30 1/4
(R1) Resistance 1: $3.27 3/4
Today’s close: $3.26 1/2
(S1) Support 1: $3.25 3/4
(S2) Support 2: $3.23 3/4
(S3) Support 3: $3.17 1/4
MEAL – Sep '09 Electronic
Open – $336.00, High – $343.50, Low – $334.70, Close – $343.70 Up $9.50
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "Sep meal struggled today as a result of the sell-off in soybeans. The general thought among traders today is the corn acres will be reduced on Wednesday and as a result the soybean acres will be increased. I still take the stance of I have no clue what the USDA will provide us with Wednesday morning but we are still delta hedged (neutral) on soybean meal at this time.
The market looks like it is pausing in this area and is looking for good reason to either move higher or lower. When doing this the market trades sideways as traders develop opinions of the market and then whichever direction the market breaks out of the traders that were wrong will more than likely cover their losing positions creating volatility. The sideways range we have developed is between $332.00 and $349.20 so which ever direction we break out of should provide a push or volatility.”
Sep '09 meal: Like corn I have very little to add to today's comments that weren't already covered in yesterday's thoughts. I liquidated our delta hedge position in soybean meal today to allow for unlimited upside going into tomorrow's report. We will also have unlimited downside via $320 Sep meal call options. The market will take direction from the USDA report but keep in mind we have been trading within the $332.00 to $349.20 range and whichever direction we breakout of we should move in that direction for a period of time.
Bottom line: I’m looking for the market to experience an early high and a late low tomorrow; however, the USDA report will trump any indicators I use.
Sep '09 Meal – Support/Resistance for 08-12-09
(R3) Resistance 3: $349.10
(R2) Resistance 2: $345.90
(R1) Resistance 1: $344.60
Today’s close: $343.70
(S1) Support 1: $340.10
(S2) Support 2: $337.10
(S3) Support 3: $334.20
HOGS – Oct '09 GLOBEX
Open – $45.85, High – $46.10, Low – $44.00, Close – $44.35 Down $.65
Thoughts – Long Term (into December) – Negative
Yesterday I said: "Oct '09 hogs tried to rally today, perhaps with the notion that pork cutout was going to be higher tonight as it was up $2.08. I am sure there were traders that new of the higher cutout number prior to it happening and we saw the market trade higher for most of the day but fail to hold any good gains going into the close. After the cutout number was released at 3:00 p.m. CST the Oct '09 contract popped $.50 to $.80 on the news but failed to do much more than that.
It is possible to see the market retrace to upwards of $49.325 if we can get more upside follow through on the pork cutout; however, it sounds as if we are getting more liquidation in the industry which could help keep a lid on the cash market for now. From a technical perspective the market opened above last week's low which is a perfect open for follow through to the downside. From the July 17th high to the last reaction low was a move of $9.10 cwt and the most recent move from the high on July 31st to Friday's low has $
7.85 $10.425 cwt. I do see a cycle low projection for the Oct '09 contract on Aug 12th but as of right now I don't see anything in the candlestick charts that would agree with the cycle at this time. I will continue to monitor this cycle to see how it develops along with any other signals the charts may provide.
I would like to see the pork cutout continue to move higher ALONG with cash in conjunction with the SHORT-TERM projected cycle low on Aug 12th in the Oct '09 contract."
Oct '09 hogs: The cycle projection for Aug 12th is still in play but the trading activity doesn't agree with the cycle at this point. With the close we had today we should have a steady to better opening tonight/tomorrow which is an excellent opening for follow through and in this case that would mean follow through to the downside. I am not sure how I did my math yesterday but I said the latest move lower from the July 17th high was $7.85 cwt when actually it was $10.425 to Friday's low. My apologizes for the mix up.
We closed at fresh contract lows again with weaker cutout and cash still being the front running issue. H1N1 is beginning to make its way back into the news and will probably intensify once the school season starts. The ramped up what ifs in battling H1N1 could give the pork industry a deeper color purple to its already black eye as it pertains to pork consumption and export markets. I read a story yesterday on Foxnews.com talking about the worst case scenario for a H1N1 outbreak. We have to be prepared as an industry to deal with this type of publicity because it is inevitable in my opinion.
I haven't seen anything in this market to make me think hedges should be adjusted or lifted. The sow liquidation appears to be picking up which is good for deferred contracts but should keep some pressure on the front end of the market which is where we are hedged. I still maintain a defensive stance for the hog market at this time.
Bottom line: I’m looking for the market to make an early high tomorrow.
Oct '09 Hogs – Support/Resistance for 08-12-09
(R3) Resistance 3: $45.475
(R2) Resistance 2: $44.825
(R1) Resistance 1: $44.475
Today’s close: $44.35
(S1) Support 1: $43.95
(S2) Support 2: $43.80
(S3) Support 3: $39.64
(S4) Support 4: $35.27
(S5) Support 5: $29.40
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