Hog & Corn Comments 04/28/09 - Hogs caught in aftershock of flu.
Apr 28, 2009
Visit the Swine Flu page of my website for updates on this issue.
CORN - July ‘09 Electronic
Open - $3.78 3/4, High - $3.86, Low - $3.76 3/4, Close - $3.83 1/2 Up $.02 3/4.
Thoughts - Long Term (6 months) - Bullish/Higher
Yesterday I said: “It was all about the Swine Flu today and the negative press that comes with it. It is interesting to see human emotion take hold and panic which is what we saw last night and early this morning in the corn market. I said in my last post I was looking for $3.65-.67 to be tested again before we go higher (May ‘09 contract) and today our low during the day session was $3.66 and we never looked back. I have switched my focus from May ‘09 to July ‘09 because of the pending May expiration. I think this pull back is an excellent opportunity to further cover feed needs as I purchased a June ‘09 $3.80 call and sold a July ‘09 put today for $.08. There is good support in this area and this is the second time we have made a move lower like this only to come charging right back. We have a small double bottom for this move at $3.70 in the July ‘09 contract and I fully expect it to hold as our low unless we get a massive outbreak of the Swine Flu that actually requires killing pigs however I don’t see it happening.”
July ‘09 corn: Not much has changed from yesterday as far as my thoughts are concerned. I still think we have good support in this area and if you don't have feed coverage in place for corn I would look to get coverage in this area. It was a relatively quiet day in the corn market not much to talk about so I will leave it at that. I am looking for an early low again tomorrow and a late high in the July '09 contract. We closed above $3.82 1/2 and if we do it again tomorrow then the market should begin to seek out the $3.95 area.
Bottom line: I am looking for the market to experience an early low and a late high tomorrow. Now that I have all my feed needs covered via $3.80 June ‘09 call options to the upside I will look for opportunities to manage any potential equity we acquire and look for a place to exit our short $3.40 July ‘09 puts on a rally.
July ‘09 Corn - Support/Resistance for 04-29-09
(R3) Resistance 3: $4.01
(R2) Resistance 2: $3.95
(R1) Resistance 1: $3.85 1/2
Today’s close: $3.83 1/2
(S1) Support 1: $3.82 1/2
(S2) Support 2: $3.78
(S3) Support 3: $3.76 1/4
MEAL - July ‘09 Electronic
Open - $306.40, High - $311.20, Low - $303.00, Close - $304.00 Down $2.30
Thoughts - Long Term (6 months) - Bullish/Higher
Yesterday I said: “Like corn meal was a victim to the panic selling related to the Swine Flu. As mentioned above I wasn’t friendly meal at the end of last week at all and I expect a possible test of $296.60 in the July ‘09 contract. Just to make note I have switched my focus from May ‘09 meal to July ‘09 meal due to the contract expiration in the May contract. I am looking for some more early selling in soybeans and then I think we can put a fork in for the day as I believe we will have traded enough contracts to get through all of the emotion that has come with the Swine Flu. I have a cycle low on in July ‘09 meal around May 18th so I am in no hurry to buy meal although I did let May ‘09 $320.00 call options turn into long futures Friday and I still have the position for now. It is on around 55% of my needs but I will monitor this position closely.”
July ‘09 meal: I said not in a hurry to buy meal but we didn't get an early low and a late high like I thought we would today. I am staying with that thought for tomorrow because the hourly chart was searching for a short-term bottom today which I think will show up in early trade tonight. I am still looking for a test of $296.60 in the July '09 contract at some point and we may have a chance to get it in the near future as the rumor today was the Chinese were going to cancel some soybean orders. I look for buying to surface after early selling in tomorrow's session.
Bottom line: I’m looking for the market to experience an early low tonight and a late high tomorrow.
May ‘09 Meal - Support/Resistance for 04-29-09
(R3) Resistance 3: $311.20
(R2) Resistance 2: $308.10
(R1) Resistance 1: $307.10
Today’s close: $304.00
(S1) Support 1: $303.00
(S2) Support 2: $300.60
(S3) Support 3: $298.10
HOGS - June ‘09 GLOBEX
Open - $68.15, High - $68.60, Low - $65.65, Close - $66.30 Down $2.35
Thoughts - Long Term (6 months) - Friendly
Yesterday I said: “Synthetically the June ‘09 hog futures were trading $3.65 lower on the day when factoring in options. The limit for the day is only $3.00/cwt in the futures but option could still trade and when you factor in what they did it suggests the June was actually down $3.65/cwt instead of $3.00 like the futures showed. This is actually a good sign for tomorrow as far as I’m concerned. The opening today (from a weekly perspective) was bullish based on what I look at on the charts. If the June ‘09 contract can manage to reverse and move higher we could be setting a bottom. Now, I didn’t say go buy the market but I would look to trail hedges with a buy stop at $69.20 or purchase a call option against hedges to protect equity if you have any.
I have talked about events before and this is one too only on a larger scale. With events comes emotion but when you put all of the information down on paper this is just a temporary setback in the futures because Swine Flu IS NOT spread by eating pork. I am impressed with the Government as they have tried to make it very clear that you cannot get sick from eating properly handled and well cooked pork. I am looking for tomorrow to have a some more follow through selling and if we gap open lower and then turn around and trade higher on the day there will be a buy signal at $68.90 stop with a risk management sell stop $.25 below the current low at the time you get your fill.
The one wild card here is the media, they can report however they like and I would imagine there will be a fair amount of fear/panic based headlines which may extend the selling in hogs. I for one don’t believe the selling will last much longer in the hog pit; there really is no reason to at this point. I will be restructuring my hedges tomorrow to be in a more bullish position while still having coverage in place to the downside. I want to protect the equity that was gained today as best we can.”
June ‘09 hogs: Well June '09 hogs got hit again today, the only good thing is that we rallied into the close. There seemed to a decent number of buy orders coming into the market via the Globex. I said there was a buy signal for today at $68.90 on a stop today but we didn't get there which turned out to be a good thing. I did move my positions around to provide more upside potential should we get a rally off of these new lows, I rolled down some call options that were out of the money down to $68.00 and $69.00 in the June. I was wrong on the early low and late high today but I think we should see this action tomorrow.
The cutout was down $1.44 today but it was up $.45 yesterday so with all things considered it isn't that big of a decline in my book but on the same token I trying to be objective when looking at this situation and use logic when thinking instead of emotion and fear. The market and media does a great job of instilling the latter into us and it feeds on itself. When I look at the market I try to think about what I know about it. 1.) Swine Flu is providing plenty of negative press, 2.) packers will not do anyone any favors and why should they, it is business for them just as it is for the producer but it stinks they have as much control as they do. 3.) We CAN NOT get swine flu from consumption of pork so there is no fundamental reason at this time (other than import bans from other countries from the select states that have swine flu in the U.S.). 4.) I have a cycle low the end of this week week, 5.) we left a HUGE gap at $71.25 in the June '09 contract's weekly chart and gaps tend to get filled.
After looking at all of this information I ask myself if I want to try and trade the market six times in a day to scalp some small gains for position myself for something bigger down the road. In my experience I have usually been happier with the positioning approach vs. the trading approach especially when it comes to events. The big thing is trust your research and have a contingency plan in place if you are wrong but you need to deal with the emotion and keep it under control as much as possible. If you will read the comments I wrote on Saturday the 25th, (click on the 25th on the archive calendar to the right of the screen) you will see what my thoughts were then and I wrote that in an un-emotional state.
The market will indeed prove me right or wrong from a market direction perspective but the bottom line is managing your positions and your equity and that is what I look to do. My CONDITIONAL buy order for tomorrow is IF we open below $65.65 in the June '09 contract then I would have a buy stop at $65.90 with a risk management sell stop about $.25 below the current low at the time of your fill.
Bottom line: I’m looking for the market to be lower tonight/tomorrow and experience an early low and a late high. There were good buy orders coming into the market later this afternoon and I expected an early violent sell off and then recovery the balance of the day which we didn't get so I now look for that tomorrow. I was wrong on today's action but I believe it will happen tomorrow.
June ‘09 Hogs - Support/Resistance for 04-29-09
(R3) Resistance 3: $68.32
(R2) Resistance 2: $67.30
(R1) Resistance 1: $66.675
Today’s close: $66.30
(S1) Support 1: $65.65
(S2) Support 2: New Contract Lows
(S3) Support 3: $
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