Hog & Corn Comments: 06/15/09 - Commodities fall on dollar strength.
Jun 15, 2009
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CORN - July ‘09 Electronic
Open - $4.22 1/2, High - $4.24 3/4, Low - $4.05 1/2, Close - $4.06 Down $.19 1/2
Thoughts - Long Term (Into September ‘09) - Bullish/Higher
Last week I said: “The U.S. Dollar Index indeed closed ugly yesterday and set itself up for follow through to the downside today. As I write this the dollar is off .90 which is a sizable move for this index. I believe more of the buying or firmness in the corn market today was due to the weak dollar and crude oil than it was for people positioning for tomorrow's report. The projections for tomorrow's USDA corn crop production report are as follows:
08/09 Ending stocks - 1.607 with trade guesses ranging from 1.550 to 1.704; last month's number was 1.600
09/10 Ending stocks - 1.071 with trade guesses ranging from .731 to 1.458; last month's number was 1.145
It feels like the market is pausing in this area just below the $4.50 resistance area and is building a head of steam for a break out. I have no indications from a technical perspective that a break out to the upside is going to happen but it is my gut feeling. I continue to place a fair amount of weight on the U.S. Dollar Index for which I have given more weight to it than I have to the fundamentals of corn itself. Tomorrow will be a crap shoot because of the USDA monthly crop production report but my feeling is the market seems like it wants to move higher and with that being said they trade can spin this report any way they want it but my guess is up. I did buy a put spread today for $.05 1/2 to cover my downside exposure on my short $4.20 puts in my Aug '09 call option strategy but I bought the put spread from a risk management perspective not because I think the market is going lower. If the Dollar remains weak tomorrow I think the market will trade that instead of the report if it is negative. If the report is bullish (along with a weak dollar) then I say look out, I think we test $4.50 in a hurry and I don't think you sell the open like I would normally say!”
July ‘09 corn: I was dead wrong on market direction last week based on the comments from above. The U.S. dollar index has moved higher which gives the negative effect on commodities for now which allowed the corn market to fall as much as it has. I mentioned in the above paragraphs that I purchased a short-term put spread to hedge against lower prices in corn and protect equity in feed positions, it felt pretty good today having that position on! I did exit that position at $.18 which was up from the $.05 1/2 entry price, this profit allow us to offset the losses in the short put positions we have in an August 3 way call position. I moved the August 3 way call from $4.60 down to a $4.20 so we are closer to the market in the event we rally from here.
July corn closed below the 50% retracement level today ($4.10) and just above the 62% retracement level of $4.00 1/2. If the market wants to make another move toward the $4.50 high then we need to stay above $4.00 1/2 for sure but a closing above $4.10 would provide greater odds of a re-test. If we move below $4.00 1/2 and close there for two consecutive days then I would look for a test of $3.70. I have a buy signal in the July '09 corn at $4.07 stop. If I were to buy futures here (I'm not because we own a call strategy) I would have a risk management sell stop at $4.04 but as I mentioned before we have a call strategy in place which gives us more time and flexibility in our position than futures do.
Bottom line: I am looking for the market to experience an early low and a late high tomorrow.
July ‘09 Corn - Support/Resistance for 06-16-09
(R3) Resistance 3: $4.17
(R2) Resistance 2: $4.15
(R1) Resistance 1: $4.10 3/4
Today’s close: $4.06
(S1) Support 1: $4.05 1/2
(S2) Support 2: $4.02 1/2
(S3) Support 3: $4.00 1/2
MEAL - Aug ‘09 Electronic
Open - $384.90, High - $389.00, Low - $370.50, Close - $371.80 Down $13.90
Thoughts - Long Term (Into September ‘09) - Bullish/Higher
Last week I said: “Today was a case in point for using stop orders to enter or exit a position. I still have the sell signal at $392.00 in the July soybean meal contract but if you will notice what I said yesterday it is a stop order not a market order to just go get short or exit long positions. Stop orders allow the market to prove itself to you before you take a stance in a trade or position. If I would have just gotten short last night or yesterday on the close it would have been stopped out of my position with a loss today because the market moved higher than $404.50.
Today was as good day for meal other than it settled near its high for the day. This brings up two interesting points for tomorrow's trade, 1, we could open above today's high of $408.20 which would create a sell signal at $407.70 or 2, we open unchanged to lower tonight which is a good sign of follow through to the upside. I am taking the side of a sideways to lower opening tonight and look for the market to be relatively quiet before tomorrow mornings report. My thoughts are the same with soybeans as they are with corn however I feel stronger about the potential of corn than I do the potential of soybeans.
USDA Soybean report guesses for tomorrow on:
08/09 Ending stocks - .114 with trade guesses ranging from .099 to .130; last month's number was .130
09/10 Ending stocks - .211 with trade guesses ranging from .140 to .376; last month's number was .230"
Aug ‘09 meal: the meal market hasn't dropped as much as corn has on a percentage basis but it has backed off of its highs no different than most all commodities after the rally the dollar has mounted over the last couple of trading sessions. The August meal contract is at support at $372.00 and we close slightly below it today, if this number is breached and we have two consecutive closes below this level then look for $356.70 to be tested. Similar to corn I have a buy signal in the August '09 meal contract at $371.50 on a BUY STOP IF the August contract can make new lows below $370.50. If the market does meet the conditions of the buy signal then a risk management sell stop should be placed $.50-$1.00 below the most recent low.
Bottom line: I’m looking for the market to experience an early low and a late high tomorrow.
Aug ‘09 Meal - Support/Resistance for 06-16-09
(R3) Resistance 3: $382.50
(R2) Resistance 2: $380.20
(R1) Resistance 1: $375.40
Today’s close: $371.80
(S1) Support 1: $370.50
(S2) Support 2: $368.30
(S3) Support 3: $356.70
HOGS - Aug ‘09 GLOBEX
Open - $60.325, High - $60.325, Low - $57.825, Close - $58.40 Down $1.075
Thoughts - Long Term (Into August) - Friendly
Last week I said: “Well so much for our trusty old support level at $60.925, it failed today and the market even closed below this level which also isn't good, however, for the sake of confirmation of violated support I need to see the August contract close below $60.925 again tomorrow before I will agree the market is indeed headed lower. Today was quiet of course until the end of the day then we got some spread action going on between the July and August. The cutout was up .53 today which is now the second day in a row that we are up even though yesterday was only up .03 it wasn't lower!
Cash hogs were lower today but there weren't a lot of negotiated pigs (second lowest level since January 1, the lowest level was on May 21st) so the lower cash bids this afternoon are skewed in a sense. As I said before I need to see the August contract close below $60.925 again tomorrow before I am willing to say we will see another leg lower in the August contract. It is rumored that the cutout market may have bottomed or is now in the bottoming process therefore pressing futures much lower may be a risk in itself. I feel like we are near a bottom in the futures as well but we can't seem to keep the markets all the way through a trading session therefore I am waiting for some confirmation of a rally before I get excited about the prospect of a rally.”
Aug ‘09 hogs: The hog futures continue on the path of least resistance which is, you guessed it, lower. Cash prices were slightly better per the USDA noon report but that didn't seem to bother the futures at all. Most commodities were lower today mostly as a result of a much stronger dollar over the past two trading sessions so why would an already weak market (hogs) have any reason to go against the crowd and move higher.
August once again closed at new contract lows and has no interest in changing direction at this time. I have a cycle low projected for this Thursday and then firmer trade moving into the 4th of July time-frame. Keep in mind these cycles are projected into the future based on historical trade so take what I am saying with a grain of salt, the market has proven that it doesn't need to do anything! I have nothing good to say about the hog market at this time and I will continue to look for reasons to get excited but for now I don't see any. I still feel like we are near a bottom but we need some good news from the export market to really get cutout going but until then I think the market just grinds lower until it has something solid to stand on and move higher.
Bottom line: I’m looking for the market to make an early low tomorrow.
June ‘09 Hogs - Support/Resistance for 06-16-09
(R3) Resistance 3: $60.80
(R2) Resistance 2: $59.675
(R1) Resistance 1: $58.975
Today’s close: $58.40
(S1) Support 1: $57.825
(S2) Support 2: $57.15
(S3) Support 3: $56.40
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