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Wednesday, August 13, 2008

Hog Comments - 08-13-08 Grains lock limit up and hog slightly higher.

CORN
Corn or grains in general had a tremendous day by closing the market locked limit higher.  Corn closed another .10 cents higher synthetically than the .30 cent daily limit.   I think it may be safe to say that the market has turned for now and should head for $5.65, $5.80 and ultimately $6.24.  I need a close above $5.65 for a day or two before I am holding my breath for $6.24.  I noticed something on the weekly charts this morning that I hadn't noticed the other day, it is a HUGE buy signal at $5.14 in the Dec contract.  If this signal is good it should provide a violent move higher and so far all of the characteristics are in line for this to happen.  We did purchase some cash corn prior to the open this morning so we are slowly getting more aggressive in the cash market.  We will continue to build cash positions over the coming weeks.  We have one years feed corn needs covered around $5.40 (via option strategies) in the Dec '08 contract and we will now work to manage the equity in this position as the market moves higher.
I would expect a gap higher opening tonight because of the pooled contracts to buy at limit higher and continue the trek higher tomorrow.  Limits in corn tomorrow will be .45 cents instead of the usual .30, I expect better markets tomorrow however I don't foresee another limit move.
MEAL
Meal had a limit move higher today and like corn I expect the market to move higher tonight/tomorrow as well.  If we can hold $350 as support in meal I believe we should challenge the $381 high from July 30th, 2008.  I have calls on in meal that are now in the money and I will continue to hold them into expiration.  The September call options will turn into long futures (assuming the market stays higher) and when they do I will roll them to the October contract.  I feel the soybean meal market has bottomed in here and we should start and continue to make higher high's than previous day's and we move forward.  I expect better markets tomorrow.  
HOGS
Hogs had a relatively mixed day today with the back end months trading considerably higher (because of corn) and the front months still struggling some.  Cash was listed lower on the USDA's morning report but the afternoon bids came in just above unchanged from yesterday.  $76.55 is resistance for me in the Oct '08 hogs and this number held resistance today.  I still expect a test of the $74.40-$75.00 area and then I will make a decision on how to restructure my short positions.  I have sources telling me that cash is still strong but what baffles me is that we keep moving cutout higher and the futures do not respond.  Cutout was lower tonight by .32 cents and overnight trade is currently up .07 cents so no big deal.  If we close Friday above $74.62 it will be the first year since 1993 that the October futures have closed higher on August 15th than they did on the 1st of the month.  The study that I did going back to 1993 was based on years where October futures were above $65.00 on Aug 1st.  I can see sideways to higher markets tomorrow for Oct '08 hogs but I am not a bull here, I am keeping my hedges and will be looking for an opportunity to adjust hedges with options when the time is right.  I am not sure when the time is just yet but I am willing to change my mind on a dime if needed.


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
-----------------------------------------------------------------------
         Total                   Today's Primal Cutout Values
Date     Loads      Carcass    Loin    Butt   Pic     Rib   Ham  Belly
-----------------------------------------------------------------------
08/13        91.5      93.60  116.90  102.90  74.26 106.37 88.18  97.31
Change :               -0.32    1.42    1.11   0.13   3.90 -2.30  -2.41
-----------------------------------------------------------------------
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 :   .02 lwr   :   .22 hgr   :   .08 lwr   :   .25 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 76.00-89.00 : 78.00-89.00 : 76.00-89.00 : 78.00-88.39
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    85.53    :    86.00    :    85.89    :    84.99
--------------------------------------------------------------------------
Head Count      :   23,794    :    9,465    :   14,083    :    9,481
========================================================================== 


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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