Hog & Corn Comments - 09-24-08 - Grains slightly higher but hogs close mixed.

Published on: 15:00PM Sep 24, 2008

Hog Comments - 09-24-08 - Grains slightly higher but hogs close mixed.

Jeremy Knutson
[email protected]

December 2008 corn opened at $5.70 1/4 this morning which was in line with overnight trade.  This type of opening left a gap on the day session intraday charts which usually signals overconfidence for over bearishness. Today was overconfident. The market managed to rally $.04 prior to breaking all the way down to $5.55 for the low the day.  Dec corn settled at $5.63, which is below the 50% retracement level of $5.64 1/2, this type of action would suggest a mixed to better opening this evening. Even though we may open higher tonight, I expect a test of the $5.55 level, if we violate this level that we could test $5.51.
I said last Friday that I expect that the corn market to be better this week, thus far that statement is true but I am not impressed with today's close. The market only gained $.02 from last nights open to today's close with a range of $.19.  This type of trade would suggest sell stops below today's low of $5.55.  There was a lot of movement in the market today but all for not, the funds only bought around 3,000 contracts.
Bottom line - I expect Dec '08 corn to open mixed to higher tonight but I don't expect it to trade higher for very long.  It looks to me like we could test $5.55 and POSSIBLY down to $5.51 either tonight or tomorrow.  If we close above $5.65 tomorrow I would expect a test of $5.79 3/4 rather soon but I don't expect a close above $5.65 tomorrow.

I said the same thing about meal last Friday as I did about corn; I expected the market to be better this week.  The market has been better but the daily chart is starting to show me warning signs, not sell signals but warning signs.  I would say there should be sell stops below todays low of $327.80 for tomorrows trade.  I am not a bear long-term because I get the fortune, or miss-fortune depending on how you look at it, of hearing about early soybean yields.  Some are good and some are disappointing, more are below expectation versus above expectation.  
It feels like we should trade toward $3328.80-$330.30 level either tonight or tomorrow.  Again, I am not bearish long term but the charts are giving me warning signals on the day chart.  I don't care, I am not exiting any hedges because I think this could be some of the lowest prices we have if yields come in below expectation and the USDA revises their production number.  We have a tight supply of soybeans and can't afford to lose any.  This is still a TREMENDOUS opportunity to buy calls or use some type of price protecting strategy for your meal needs.
Bottom line - I expect Dec '08 meal to open mixed to higher tonight and trade there for a while prior to making a break to the downside.  I feel like we could test $323.20 by Friday based on todays close.  I look for weaker trade tomorrow for Dec '08 meal.

It was hard to stay awake today watching the hog market trade!  When is the last time we had an $.80 range all day?  I don't have much to say other than it feels like cash could be in trouble again as well as the pork cutout.  I talk about the cash market with less confidence than I do the futures market because I use charts on the futures side to make decisions, I don't have the luxury of charts with cash.  Please don't use me as your source of cash information because it isn't my specialty.  Based on reports from those I interact with on a daily basis the feeling is somewhat heavy and confusing.  All of the other markets have been crazy and hard to explain this year so why should cash hogs be any different I guess. 
The U.S. Dollar Index hasn't done much either yesterday or today.  We had a low of 75.89 and are currently trading at 76.99 as I write this.  It will be interesting to see how we close on Friday because we have touch the 50% retracement level of 75.86 almost exactly (75.89 actual low) and bounced off of it.  If the Dollar holds firm into Fridays close I would consider this weeks trade as positive and it should look to continue moving higher next week.  I wouldn't call it a reversal just yet but I would be friendlier than I have been over the past couple of weeks.  
REMINDER - The quarterly Hog & Pig report is due out Friday September 26th at 2:00 p.m. CST.
Bottom line - I don't feel like the hog market wants to move in any specific direction, it is confused and looking for direction.  We need a break-out and close above an old high or below and old low.  It feels like the Dec '08 hogs will be lower tomorrow.  $65.95 will be support and below that is $65.55 and then it is clear down to $64.22.  I think the $65.55 area should hold the market but I don't expect a big move tomorrow.  Probably more of the same like today.
 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 ----------------------------------------------------------------------- 09/24        88.5      75.22   91.39   74.05  56.60  85.31 74.15  82.43 Change :                0.22    0.83   -1.66  -0.04  -2.29  0.97  -0.06 -----------------------------------------------------------------------
 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 :  1.08 lwr   :  1.50 lwr   :  1.36 lwr   :   .48 lwr Negotiated      :             :             :             : CARCASS BASIS   : 59.00-73.75 : 59.00-73.75 : 59.00-73.75 : 61.25-72.30 185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg Plant Delivered :    69.80    :    70.90    :    70.88    :    67.62 -------------------------------------------------------------------------- Head Count      :   21,814    :   10,505    :   14,125    :    7,340 ========================================================================== 
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