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CORN – Dec ‘09 Electronic
Open – $3.09 1/4, High – $3.19, Low – $3.08 1/2, Close – $3.15 1/4 Up $.05 1/2
Thoughts – Long Term (into December ‘09) – Sideways/Lower
Yesterday I said: "I don't have much to add to yesterday's comments other than my opinion hasn't changed. I am not a big fan of corn prices if the assumption of a larger crop is accurate. There was a firm that released a report today saying both corn and soybeans yields are overstated but we will let time determine that. I have been surprised almost every year at what the corn crop can withstand in the way of Mother Nature. Granted a freeze could be an extreme issue for corn to deal.
I continue to be open to the downside and have coverage to the upside at this point and will remain that way until we see something to change that opinion. The USDA will release their monthly crop production report on Friday September 11th which should give the market some additional direction.”
Dec ‘09: Tomorrow is the USDA crop production report released at 7:30 a.m. CST which should provide some direction to the market. We had a private analyst group (yesterday actually) suggest much lower yields for this year's crop which provided some profit-taking support. I don't know if this analyst group was factoring in an early frost or if it was their projection of a normal harvest. The group projects a national yield of 153.8 vs. the USDA yield of 159.5 from last month (I believe the trade is well into the 160's with their thinking, me included).
Assuming the projections are accurate the corn production would drop from the USDA projected number of 12.761 billion bushels to the analyst's projection of 12.123 which would provide a 640 million bushel drop in production. If accurate this would be a significant change in fundamentals and send corn much higher than current levels, say back toward $4.00+ in my opinion.
Currently we own October $3.20 call options for upside coverage on a large portion of feed corn needs. We will monitor our position after the report tomorrow to see if it needs to be adjusted but I don't foresee the report being that bullish tomorrow (until the USDA reads this and says AH-HA, we'll show him!). There is no doubt our crop is behind this year and it will be interesting to see if the trade takes on one more crop scare rally which could very well be underway.
I am still of the opinion we move lower over time but we need to make sure we are covered with feed corn needs thus our call option positions in case I'm wrong. If we get a crop scare before harvest I would expect $3.40 Dec '09 corn to provide some good resistance at this time. I believe today's rally had more to do with profit-taking before a report than it did with anything else.
Bottom line: I am looking for the market to experience an early high tomorrow.
Dec ‘09 Corn – Support/Resistance for 09-11-09
(R3) Resistance 3: $3.35 1/4
(R2) Resistance 2: $3.24 3/4
(R1) Resistance 1: $3.20
Today’s close: $3.15 1/4
(S1) Support 1: $3.09 1/2
(S2) Support 2: $3.03 3/4
(S3) Support 3: $2.93 1/4
MEAL – Oct ‘09 Electronic
Open – $290.80, High – $294.00, Low – $289.10, Close – $289.50 Down $1.30
Thoughts – Long Term (into November ‘09) – Sideways/Lower
Yesterday I said: “Similar to corn, I don't have much to add to yesterday's comments (above). Meal didn't do much to change the way the charts look to me other than we continue to shrug off lower prices for the second day in a row. We haven't rebounded enough to make me think we are turning here so for now I am viewing the recent moves and profit-taking and position squaring for Friday's report.
At this point I am waiting for the first day we close above a prior day high and then I will look to extend some coverage. We have call options in place; however, they are out of the money for catastrophic coverage. I still think we could test $281.50 but I also think this level of support may hold the market for now.”
Oct ‘09 meal: We still haven't done much to get me excited about meal yet other than the nearby cash price, OUCH! Today's close allows me to further my thought of a $281.50 test unless we get some crazy numbers from the Government tomorrow. I will continue to look for a day that we close above a prior day high and then look to roll down our out of the money call options. If the $281.50 area doesn't hold then we could see prices drop to the $270.00 area before finding more support. The USDA report should give us some direction tomorrow.
Bottom line: I’m looking for the market to experience an early low and late high tomorrow.
Oct ‘09 Meal – Support/Resistance for 09-11-09
(R3) Resistance 3: $300.70
(R2) Resistance 2: $295.70
(R1) Resistance 1: $292.60
Today’s close: $289.5
(S1) Support 1: $287.70
(S2) Support 2: $285.90
(S3) Support 3: $281.10
HOGS – Dec ‘09 GLOBEX
Open – $50.075, High – $52.225, Low – $49.65, Close – $50.70 Up $1.05
Thoughts – Long Term (into December) – Negative
Yesterday I said: “I am still of the opinion that this is a hedging opportunity via limited risk strategies for those that have nothing in place in the Dec '09 contract. The deferred contracts rallied more than the front months did today because of spread activity. I have a sell signal for the Dec '09 contract at $49.50 on a stop order with a risk management buy stop $.50 above the most recent high. This signal was good for today and is also good for tomorrow as well.
The pork cutout number was $.86 higher tonight and cash was mixed to higher. $50.00 is 62% of the way back to the July 31st high and should be viewed as resistance by the market. If we close the market above this level for two consecutive days then we could see a test of $51.125. It will be interesting to see how the market treats the $49.50 sell stop signal tomorrow and again this is a stop order where it is only good if it gets down to $49.50 which means it would be a sell on the way down.
As of now I am still of the opinion that this rally is a good hedging opportunity in the Dec contact via a known risk strategy. If you have questions on what type of strategy to use for your operation email us at email@example.com."
Dec ‘09 hogs: Again I shake my head. It was a very interesting day in the Dec '09 contract today as we made a high of $52.225 and then closed at $50.70. The chart shows this as a potential spike high for the Dec '09 contract. We have the Goldman roll to contend with this week which on its own will create additional volume but today was a very high volume day for the Oct and Dec '09 contracts and when you couple the type of trade we had today and the volume it is typical of a top. If today's high is taken out and closed above then look out we could move higher fast and touch $54.275 in a quick hurry but I don't think the likely-hood of that happening is very great.
Having said all of that, I have been made to look like a fool the last week or so with my thinking that this was/is a profit-taking rally and the sad part is I still think so! I REALLY think this is a great opportunity to extend any protection that needs to be placed in the Dec '09 contract via a known risk option strategy. We are hedged in the Dec '09 contract and we had a $46/52 call spreads in the Oct '09 contract to give us some upside. Today the top end of our protection was met so we adjusted our position into the Dec '09 contract buying a $52/58 call spread and selling a $42 put for a little less than $1.50 cwt.
This position still gives us the downside protection we need and allows us upside to $58.00 in the Dec '09 contract. We will need to manage the short $42.00 put options because if the market moves below $42.00 in the Dec '09 we would be long at $42 which effectively would offset our hedges. The reason for selling the out of the money call and put is to help pay for the $52.00 call we purchased. If we would have purchased the $52.00 call outright it would have cost us near $3.50 cwt to do so and that's too much.
Again, at the risk of having egg all over my face I am of the opinion we are near a short-term top in the Dec '09 contract. If you NEED to get protection on now is an excellent time to do so with an option strategy so talk to your broker to discuss what is right for your operation. If you don't have a broker or are unhappy with the relationship you have with your current broker send us an email at firstname.lastname@example.org and we will be happy to discuss your operation and what is best for you.
Bottom line: I’m looking for the market to make an early high tomorrow then weaken as the day progresses. I look for stop type selling tomorrow below $49.65 in the Dec '09 contract if we get that low.
Dec ‘09 Hogs – Support/Resistance for 09-11-09
(R3) Resistance 3: $53.70
(R2) Resistance 2: $53.425
(R1) Resistance 1: $52.05
Today’s close: $50.70
(S1) Support 1: $49.50
(S2) Support 2: $48.275
(S3) Support 3: $45.70
(S4) Support 4: N/A
(S5) Support 5: N/A
(S6) Support 5: N/A
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