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Tuesday, August 19, 2008

Hog Comments - 08-19-08 Grains mixed after wild day and hogs weak.


CORN
You must be getting sick of me saying what a day, but man what a day.  The thought early was to buy a lower opening, which happened, and then we saw great follow through once we got past the $5.79 area. We basically blew through $5.79 by the way.  The rally was pegged as being weather driven, Chicago folk were concerned about the dry weather but really in my opinion just wanted to have a "bullish" story to pin a rally on.  Crude oil was trading around $1.00 lower this morning and then rallied to be up as much as $3.80, this got soybeans and corn rolling. 

Soybeans touched up $.52 and corn was up over $.20 cents.  We hit 12:15 p.m. and the market collapsed!  Soybeans dropped over $.82 3/4 from high to low and corn traded lower as well but managed to return to higher prices and rally into the close.  The sell signal at $5.79 (basis the conditions I spoke of yesterday) was in line to be executed.  I did not make this trade to delta hedge my call options like I thought I would.  I will wait until tomorrow to make a decision on this trade to make sure it's what I want to do.  The volume was over 113,000 in the Dec '08 contract today which leads me to believe we have backing for this little rally that held in the face of a massive soybean sell off.  I will be cautiously watching tomorrows trade to see if we need to hedge the delta on our corn position.  I originally had stop orders in place today to sell but pulled them to see how the day played out.  I actually bought about a 1/4 of a position today because I have a short $6.10 Dec '08 call that I need to manage if the market continues higher.  I was stopped out of those positions when the market sold off and I gave up around $.02 1/2 on the total position.

Bottom-line - Technically the sell signal is still in play for corn at $5.78 1/2 stop for tomorrow.   I hate when the market looks strong on long-term charts but the short-term charts have sell signals like today.  You could step in front of a train either way!  I will see how things trade tomorrow before making a change to my position, I need to manage my short $6.10 Dec '08 calls if the market wants to rally.  If the market closes above $5.79 tomorrow the sell signal is gone and opens the door for a test of $6.24 Dec '08 corn.  The sell signal would have gotten us short today and we would be upside down in the position at the close.  Not a characteristic of a good signal.   I am going to plead I don't know for tomorrow because I have the sell signal in place for one more day but I my gut is friendly the market, I am torn.  There are a couple of intra-day indicators that would suggest a correction lower tomorrow but we held and actually rallied into the close.  I will say we should be firm tomorrow but we could see both sides of unchanged tonight.  Commodity funds were projected to have bought 5,000 contracts of corn, sold 2,000 contracts of soybeans and 1,000 contracts of meal.  UGH!


MEAL
Soybean meal was just as volatile as soybeans were today.  The signal that I had in soybeans to sell was only for last night if we had a higher opening which we didn't so there was no sell signal for me today.  Looking at the market though I guess you could have fooled me!  We held support of $338 today with a low of $340.70 so $338 will still be support for tomorrow's trade.  If we can hold $338.00 then we should mount a rally from there with the $350 area and then toward today's high of $365.  I am still friendly to the meal market but days like these make me love options.  I would expect early lows tomorrow and then bounce from there.


HOGS
Oct '08 hogs traded most of the day higher but ended up closing toward the lows of the day.  Our low today of $75.12 (electronic) is right at the 50% retracement of our $71.42 low on July 29th, 2008.  If we close the market below $75.15 for a couple of days then our next target is $74.27 and ultimately $71.42.  I don't know if we have enough muster to reach the $71.42 level but I will be making some decisions on how to position myself if we hit $74.27.  I want to stay hedged because of the rallying dollar and the huge run in cutout and cash that we've had.  Electronically we have closed lower than where we've opened 8 of the last 9 trading sessions.  If history stands correct, the Oct '08 futures should be at or below $75.55 on the last trading day of August, based on previous years of similar price levels. I would expect early highs and late lows for Oct '08 futures trade tomorrow.  Cash is basically unchanged this afternoon but the cutout finally dove lower by $1.88!  Looking for lower trade tomorrow, early highs and late lows.

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
-----------------------------------------------------------------------
08/19        94.3      92.12  116.62  105.03  74.82 110.78 89.01  84.56
Change :               -1.88   -0.78   -0.28  -0.13   3.06 -1.46  -9.26
-----------------------------------------------------------------------
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 hgr   :   .21 lwr   :   .15 lwr   :   .01 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 76.50-89.00 : 77.00-89.00 : 77.00-89.00 : 76.50-88.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    85.77    :    86.42    :    86.61    :    84.39
--------------------------------------------------------------------------
Head Count      :   24,746    :   11,679    :   15,466    :    8,855
==========================================================================

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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