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Thursday, July 31, 2008

Hog Comments - Nose dive in corn and I guess pigs can fly!


CORN

Corn failed to trade higher at all today and progressively got worse as the day went on. The $6.22 area of resistance that I spoke of the other day held during the day trading session and didn't trade a tick above that number, however the overnight session did reach $6.24 3/4 on Wednesday evening. With all of this being said I feels as if corn has just run out of gas and will take the path of least resistance and the easy path right now is lower. I would expect a test of $5.94 1/2 in the Dec '08 futures and if that fails to hold as support then down to the old lows of $5.62 3/4. I am not predicting a challenge of the $5.62 3/4 low just yet, I need to see how the market acts around $5.94 1/2 first. Tomorrow should be lower after the selloff that we had going into todays close. It will be interesting to see if we can close the Dec '08 corn above $6.00 tomorrow which is a good level of support/resistance.

MEAL
Meal was a little stubborn today, I thought it would be lower than what it was but it still closed lower I guess. I see the same warning signs in soybean meal as I saw in corn yesterday. I would expect the market to be met with selling below today's low of $373.20. Even if we move higher tomorrow and make higher highs than today, I would have a sell signal at $381.50. I would only have the sell signal if the market made new highs and failed to hold them. I am still looking for an opportunity to buy meal at a lower price. Make sure you still have a plan in place to participate in the market if it moves higher because I still believe it can I just don't know as though the time is now.

HOGS
Hogs.... man do I have egg on my face today, my thoughts on hogs for today were wrong! One thing I have learned in this business over the years is if there is one thing that's a given it's that you WILL be wrong on market direction at given times. I called a friend a couple of years ago who is an options strategist and I was complaining to him how I was wrong on the market that day and he paused for a second and said "well Jeremy, don't think your special". It was simple yet good advice, it's going to happen so get used to it. It isn't how right on direction you are that matters most, it's what you do when you're wrong that makes the difference. Bottom-line to my rambling is don't kick yourself when you are wrong, brush it off and regroup. Spending energy on what would have been right isn't going to make what you should do next any better. So on to the market. We had a very strong up move today, cash was up marginally but cutout was up $.77 last night so the packer margins increased once again. I am still sticking to what I wrote in yesterday's posting about the seasonal tendencies of Oct hogs in the Aug 1st to Aug 15th time-frame. I exited some hogs today because of the run up and also after seeing today's cutout number was up again by $1.59. I am going to re-hedge these hogs on a price rally, fact of the matter is that we can almost reach the old contract highs on a limit move tomorrow. The only negative thing I see right now is that there is a possible sell signal at $74.25 tomorrow IF and only if the market trades below it. These signals that I speak of are usually shorter-term and shouldn't be traded based on this blog because I can change my mind in five minutes if I see something I don't like. With cutout being higher I am going to say we should see hogs trade higher tomorrow. If we close above $74.00 tomorrow I would say we should test the old contract highs next week if we don't do it tomorrow. Again, I am PLANNING to re-establish hedges if the market is up a couple of dollars tomorrow unless I see something that makes me think otherwise, positive or negative.


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
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Total Today's Primal Cutout Values
Date Loads Carcass Loin Butt Pic Rib Ham Belly
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07/31 75.5 88.23 101.38 92.35 70.54 96.30 89.31 99.49
Change : 1.59 -0.35 1.30 1.00 0.69 2.41 4.99

National Direct Hog Price Comparison

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: National : Iowa : Western : Eastern
: : Minnesota : Cornbelt : Cornbelt
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Base Price is the price from which no discounts are subtracted and
no premiums are added.
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BARROWS & GILTS : .20 hgr : .06 lwr : .22 hgr : 1.00 hgr
Negotiated : : : :
CARCASS BASIS : 70.75-81.84 : 73.00-81.84 : 70.75-81.84 : 75.00-81.00
185 lb Base Hog : wtd avg : wtd avg : wtd avg : wtd avg
Plant Delivered : 79.29 : 79.52 : 79.76 : 78.67
--------------------------------------------------------------------------
Head Count : 24,147 : 9,220 : 12,742 : 10,641

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.

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