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CORN – Sep '09 Electronic
Open – $3.25 1/2, High – $3.35 1/2, Low – $3.19, Close – $3.30 3/4 Up $.04 1/4
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "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).”
Sep '09: The USDA left the corn acres the same as the July report but raised the yield from 153.4 to 159.5 and increased demand to help offset some of the increased yield. The bottom line was the 09/10 corn carryout moved from 1.550 to 1.621 billion bushels for a total increase of 71 million bushels. The report was a bearish report at face value but the market sold off early and then moved higher from there.
Report days are event days to me and I have an unwritten rule not to trade on event days. If the event is known in advance, like today's report, I try to position myself (like many others) going into the report. We liquidated our delta hedges yesterday because we needed to have upside potential if the market rallied and looking at the market today that was a good thing at the close. I am not convinced the corn market has bottomed here but you can't ignore a rally in the face of negative news either. I will continue to monitor the situation to see if adjustments to positions need to be made but for now I am comfortable in a known risk position.
Bottom line: I am looking for the market to experience an early high tomorrow.
Sept '09 Corn – Support/Resistance for 08-13-09
(R3) Resistance 3: $3.38 3/4
(R2) Resistance 2: $3.34 1/2
(R1) Resistance 1: $3.32 3/4
Today’s close: $3.30 3/4
(S1) Support 1: $3.28 1/2
(S2) Support 2: $3.26 1/4
(S3) Support 3: $3.23 3/4
MEAL – Sep '09 Electronic
Open – $343.20, High – $348.90, Low – $335.80, Close – $340.50 Down $3.20
Thoughts – Long Term (into September '09) – Sideways/Higher
Yesterday I said: "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.”
Sep '09 meal: It was interesting to see the corn market out rally the soybean market when the soybeans had more of a friendly report than the corn did. I am looking for an early low tomorrow morning and the market should firm from there. We have below normal temperatures in our extended day forecasts which may bring in some weather premium for the sake of a possible early frost in soybeans. I still think a known risk option strategy is needed for meal at this time until we get past the prospect of a potential early frost.
We are still range bound between $332.00 and $349.20 and again whichever side we breakout of we could see the market make a nice move in the direction of the breakout.
Bottom line: I’m looking for the market to experience an early low and late high tomorrow.
Sep '09 Meal – Support/Resistance for 08-13-09
(R3) Resistance 3: $348.90
(R2) Resistance 2: $345.20
(R1) Resistance 1: $341.60
Today’s close: $340.50
(S1) Support 1: $340.00
(S2) Support 2: $336.50
(S3) Support 3: $334.20
HOGS – Oct '09 GLOBEX
Open – $44.025, High – $45.125, Low – $43.40, Close – $43.975 Down $.375
Thoughts – Long Term (into December) – Negative
Yesterday I said: "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."
Oct '09 hogs: This is getting old, I feel like I have been writing the same thing over and over for weeks now but nothing has really changed. The market should continue in a downward spiral until we can prove that cash and pork cutout have bottomed and we are unable to do so. We have made some good rally attempts the last couple of days but have failed to close the market near the high of the day. I don't have much to say other than cutout still looks weak and proved it again today and it seems there are plenty of pigs for packers to pick from therefore there is no reason to get excited about the cash market.
The Oct '09 contract gave us a projected cycle low today but like I said the past few days I will not buy into that thought until we see some good price appreciation in the cash and cutout markets. The day session left us with a warning signal if you are short the market but that was before the cutout number was released. After the cutout number was known the Oct '09 contract made new lows on the day.
Bottom line: I’m looking for the market to make an early high tomorrow.
Oct '09 Hogs – Support/Resistance for 08-13-09
(R3) Resistance 3: $45.475
(R2) Resistance 2: $44.825
(R1) Resistance 1: $44.475
Today’s close: $43.975
(S1) Support 1: $43.725
(S2) Support 2: $43.35
(S3) Support 3: $39.64
(S4) Support 4: $35.27
(S5) Support 5: $29.40
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