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Monday, August 25, 2008

Hog Comments - 08-25-08 Corn reverse but hogs tread water.

Dec '08 Corn Daily Chart
CORN
We failed to get the moisture over the weekend that I talked about last Friday and therefore we did trade the overnight markets higher as expected.  The follow through wasn't there in the day session, we opened the market higher in line with the overnight but failed to make new highs.  I said last Friday I thought the market would test $6.25 sometime this week and it did on Sunday night making a $6.28 3/4 high.  Dec '08 corn only made it as $6.23 3/4 in the day session and found no willing buyers at that level and began its retreat.

I exited my long futures positions from last week around $6.13 1/4 to $6.14 1/2 and will sit on the sidelines for now.  These futures positions were against the short side of my $5.35 (Oct '08) / $6.10 (Dec '08) call spread I have on.  The market made new highs in the overnight at $6.28 3/4 but failed to re-test them this morning allowing for the market to test the early session low of $6.02 1/4 which was eventually violated.  Dec '08 DID close below Friday's low of $6.01 1/2 and with making new highs above Friday's high and closing below Friday's low we have a reversal in corn today on the daily chart.  Keep in mind the weekly chart had a great open for follow through to the upside and the key with up trending markets is that we close toward our weekly highs on Fridays.  For now the daily chart says caution if your long for the next couple days. 

As mentioned on Friday, if the market couldn't close above $6.25 and also closed below a prior day low then we could make a dive toward $5.65ish in the coming days.  Now, we can still do this and not kill the charts.  This type of action would be right in line with what I talked about with the possible formation of a Head and Shoulders bottom but it is very early to assume this could happen.  With today's close I would expect selling to surface below today's low of $5.98 1/4.  Support is now at $5.94, $5.81 and ultimately $5.66.  If we close below $5.98 1/4 tomorrow then I would feel pretty comfortable saying $5.66 is  a possibility this week.  As for now I am going to stay neutral (from a position perspective) corn unless I see something that would suggest a move higher.  I am now faced with the decision of hedging my long $5.35 Oct '08 calls.  I expect corn to struggle tomorrow as well but we did see a 3% ratings drop from last week's corn crop conditions.


Sep '08 Meal Daily Chart
MEAL
Soybean meal and soybeans maintained strength today even though wheat and corn were on the defensive.  I did sell out of my long futures in Sep '08 meal today to make sure I kept the equity we have gained.  I expect selling to surface below $360.30 tomorrow.  We didn't have a good close in Sep '08 meal today which also suggests a potential short-term top in the market.  I am taking money off the table and standing aside for now.  I will be watching this market closely, it can take off when you least expect it because of the fundamental situation in soybeans.  I exited my Sep '08 meal positions today between $367.20 - $368.50 after my options assigned me long futures at $340 Sep '08 contract.  I will look to re-own meal on a draw back toward $345.90 which would be 50% retracement to the low of $317.70.   I will look for a sell off tomorrow in meal and I will be ready to pounce if the market gets to my hedge point OR I see something I don't like during the trade session.







Oct '08 Hogs Daily Chart
HOGS

Oct '08 hogs closed higher today in the face of lower cash and cutout on Friday as well as lower cash prices this morning from the USDA's 11:00 a.m. cst reports.  Cash and cutout were weak again today and the cash market isn't afraid of taking back large chunks of what has been given to us.   The U.S. Dollar is basically unchanged as I write this so there isn't a story there today but I would expect Oct '08 futures to be shaky tomorrow with the continued slide of the daily fundamentals.  Again, I expect lower trade tomorrow.
 
I really don't have much to add to my comments that I didn't cover on Friday so I am going to paste Friday's comments into today's commentary.  I'm not being lazy; I just don't have much to add!

FRIDAY'S COMMENTS (with appropriate changes to reflect today's market)
We closed the market today at $74.00 and would still suggest a test of $71.42.  If you draw a retracement back to the July 1st, 2008 low of $68.25, $73.55 would be 50% or support.  So, I have a few numbers tangled up here but I will list them in the order of support in which they should be viewed.  1.) $73.55, 2.) $72.30, 3.) $71.60 and then all the way down to $68.25.  

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
-----------------------------------------------------------------------
08/25        72.3      87.72  111.14   96.34  66.86 107.51 84.86  84.14
Change :               -1.14   -2.35   -5.22   0.12   0.51 -0.16  -0.19
-----------------------------------------------------------------------
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 :  1.94 lwr   :  2.74 lwr   :  2.53 lwr   :   .87 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 73.00-82.00 : 73.00-81.55 : 73.00-81.55 : 74.50-82.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    79.38    :    78.91    :    79.16    :    79.81
--------------------------------------------------------------------------
Head Count      :   24,095    :    9,239    :   11,713    :   11,477
========================================================================== 

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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