Hog & Corn Comments - 09-30-08 - USDA or Under Stating Da Acres for 2007 Soybeans!

Published on: 18:58PM Sep 30, 2008


Hog Comments - 09-30-08 - USDA or Under Stating Da Acres for 2007 Soybeans!

Jeremy Knutson
[email protected]

I would like to point out that it has been a tough past two weeks and it is no secret that my comments and short-term predictions of the market have been off.  There are times when you are in sync with the market and there are times when you are not, I have been on the not side this last week.  The market has a great way of making you feel like an idiot and you should get out and stay out but we just don't have that luxury.  I try to look at the positive side in times of perceived adversity and what can be learned.  We usually learn a lot about ourselves and how we handle our emotions when things don't go as planned.

I have learned over the years there are some guarantees and those guarantees are good times and not so good times, you should experience both.  The goal is to reduce the not so good times and get more toward the middle and not have extreme highs.  The extreme highs are what actually get people in trouble because of over-confidence and a sense of invincibility.  The market has a good way of keeping us from getting too big for our britches and we need those times to keep our discipline in check.  After all, perfection is the main ingredient for disaster.  I mean the easier it becomes to make money the more confident/cocky one can get and when we are too confident we can have big mistakes.  I am not solely talking about the commodity markets but also the stock market.  The perfect mortgage package to get almost anyone and everyone into a home with no money down, low interest and a payment that could be way over their heads became the PERFECT solution to any families mortgage needs.  This is how we got ourselves in this mess and let’s not fall prey to it ourselves.  



I am at a loss for words, I have been so short-term directionally wrong this week it isn't even funny.  I don't think I would have been as wrong had our friends in Washington gone ahead with the rescue plan they promised last Friday and over the weekend.  I am wondering what I am missing; the general thought is that Americans do not want this package to be passed.  I would agree, I don't think bailouts are the answer however we don't have a choice.  We are going to pay whether the Government writes the check or Wall Street nosedives and we experience the pain via our retirement plans, children's college funds, lost jobs, slowdown in business and the list goes on!  We don't have a choice in the matter, I believe everyone knows this deep down but it chaps me when our lawmakers play politics in times of crisis.

I must say, don't get used to the rally we had in the stock market today if Congress decides not to pass a plan.  We didn't rally because investors think we can make it through this tough time without some help, it is a rally based on the idea we will get a plan by Wednesday (tomorrow) as I understand it.  They couldn't pass a bailout plan so now let’s go for the rescue plan.  ; )



Today was a rough day; I purchased put spreads against long futures from Friday to help out if the market continues to move lower.  I am not lifting any hedges at this time because the market can rally as fast as it fell apart; bottom line is we need to buy corn for feed.  We touched $4.85 3/4 today and I said yesterday $4.84 is a level of support.  I would like to say this was close enough today but I am not so sure.  If we close below $4.84 in Dec '08 corn (preferably two days close below) we could get to the $4.37 area which would be the next level of support.

I believe we will test $4.84 either tonight or tomorrow, we need to close above this level if we don't want the market to fall out of bed another $.50.  I am currently long the market with a put spread covering my downside exposure to the market.  If we close the market below $4.84 tomorrow look out below, it could be a swift move lower.  If you don't have coverage wait until we have a day where we close above a prior day high and buy calls.  I think the markets are still confused with what is going on in Washington D.C. and Wall Street.  These are the times where options prove their worth.

Bottom line - I am writing this as the overnight session trades and it is currently trading higher by $.08 and has been as high as $.11 1/2 higher tonight.  I thought we would see a test of $4.84 earlier rather than later but maybe it will be later or not at all?  If the market does stay firm we should have pretty good resistance at $5.05-$5.09.  I still feel like the market wants to test $4.84 to see if there are any sell stops below this level, if there are good stops then obviously we look for a push lower but if they test and there are no stops then we could rebound toward the $5.05-.09.  Longer-term (3-5 days) resistance is at $5.25-$5.30, we will need some good volume to get to these levels.



Dec '08 meal closed down $16.00 or so today and well below the $300.00 level that I didn't think we would violate.  I have been saying it for some time that I didn't think we would get below $300.00.  Well, today we did.  Resistance tomorrow is going to be $293.30 to $295.60 and support will be todays low of $283.50 and then down to $268.00.  With all of the rescue plan talk for tomorrow and the possibility of the House passing it would/should be friendly to commodities just for the simple fact everyone should be euphoric on Wall Street and that optimism should carry over into the Ag sector.

The USDA quarterly stocks report was bearish because they gave a carryout number of 205 million versus the trade expected 140 million.  Explain this to me, how can the USDA find 1.1 million more acres in 2007 now almost a year later AND increase the yield from 41.2 to 41.7?   This is the largest ever one year revision which has a grand total of 91 million more bushels for 2007 crop that the USDA has been underestimating for a year!  I suppose in the October production report we are going to find out that JFK was never assassinated and Jimmy Hoffa is running a resort down in the Caribbean!  Okay, I know I am taking it too far but geez Louise! 

This is one of the main reasons why I hardly read what I will call regular news stories and I don't put a lot of stock in Government reports.  I have never done well by trying to position myself based on news or reports after the fact.  There are smarter people out there with better connections than I that seem to know this information before hand and it usually shows up in the charts which is what I use to make most of my decisions.  I have been successful over the years using this method (however this last two weeks has been a bugger) but I can guarantee you it isn't fool proof nor is it an absolute winner.  I will say it helps me stay objective but in an area like we are in now I am also hedging so I don't use the charts to trade because I think we are a value levels and we need to own corn and meal and also need to sell hogs therefore I am not afraid to hold a hedge position if we are in perceived value areas of the market.

Bottom line - We had a negative close in the market today after last night’s friendly opening which was looking pretty good at the 6:00 AM CST market close today but the report/USDA threw a different story at us to nullify any possible gains that were to be had today.  That is fine; it will happen now and again, it's what makes the market the market.  I think we could test todays low at some point but I think we will ultimately go in the direction of tomorrows proposed rescue plan vote in Washington D.C.



Dec '08 hogs opened slightly better today rallied and then backed off, rallied then backed off and then sold off going into the close.  The cash and cutout market for the most part were steady.  It still seems like we are searching for a bottom in the Dec '08 contract but if we close the market below $64.00 we could see additional selling surface.  The U.S. Dollar Index was smoking hot today up over 200 points at one time which in my opinion held the hogs back today. 

It feels like the market wants to make another test run at the lows to see if they can find sellers but if they can't then I think we could make another run at $67.67 and see what is waiting for us above this level.  Again, like the rest of the Ag sector I think tomorrow all eyes will be on Washington D.C. and our lawmakers to see if they can knock out a rescue plan that will slow the bleeding and allow for confidence levels to increase.

Bottom line - I expect a better day tomorrow (like I said yesterday but got hammered toward the close today) and if we can sustain trade above $64.50 for an hour or two we should make a run toward $65.75 between tomorrow and Thursday.  Ultimately I will go with the direction of the rescue plan vote but my comments above are what the charts tell me regardless of vote.  


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
09/30        94.5      74.00   90.20   73.14  54.59  87.62 71.41  82.71
Change :               -0.32    0.63   -0.92  -0.02   0.28 -1.21  -0.51


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 :   .05 lwr   :   .02 lwr   :   .16 hgr   :   .61 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 60.00-74.00 : 60.00-74.00 : 60.00-74.00 : 60.25-71.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    69.92    :    71.03    :    71.18    :    67.87
Head Count      :   21,900    :   10,392    :   13,493    :    8,343

Hurley & Associates believes positions are unique to each person’s risk bearing ability; marketing strategy; and crop conditions, therefore we give no blanket recommendations. The risk of loss in trading commodities can be substantial, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. NFA Rules require us to advise you that past performance is not indicative of future results, and there is no guarantee that your trading experience will be similar to the past performance.