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Tuesday, August 26, 2008

Hog Comments - 08-26-08 Grains lower and hog cutout is demolished!

Dec '08 Corn Daily Chart
CORN
Dec '08 corn had a rough day today closing .11 lower in overnight trade only to open .01 cent lower in the day session and then sell off.  The reason for the better opening in the day session is crude oil was down $1.47 at 6:00 a.m. when the overnight session closed and was around $2.50 higher when the grains opened at 9:30 a.m.  The Dec contract made its high within the first 5 minutes of trade and failed to make new highs above last night's $6.03 level.  I said yesterday if the market closed below $5.98 1/4 today then we would have a pretty good chance of reaching $5.65 at some point in the near future.  

It looks to me like we should test $5.88 (today's low) either tonight or tomorrow because we closed the market below the lower half of today's trade range.  The market found it difficult to find and secure a direction today.  I tried to buy corn at $5.91 today but it failed to reach that level after I put my order in, it got within 1/4 cent of course.  I ended up buying it around $5.92 1/2 - $5.93 only to get out as a wash.  It looked like the market wanted to rally but couldn't muster up enough energy to follow through on the little rallies we had.  I did not want to hold long positions overnight because of the lack of liquidity in the overnight session.  My call strategy I have in place lost .02 3/4 cents today with the market down .06.

Again, trade looks like we could challenge the $5.88 low from today so I expect trade to be weaker tonight and/or tomorrow.  $5.65 is still my target area at this point.  We held support at $5.94 today and closed right on it but the next number is $5.81 and then $5.65.  


Dec '08 Meal Daily Chart
MEAL
Dec '08 meal traded $1.40 higher today being the rebel of the grains today.  I chose to get long Dec '08 meal today because the market failed to follow-through with lower trade.  I can't say I like being long right now but there seemed to be too much support under the market for it to move lower.  I entered the Dec '08 contract instead of the Sep '08 which I have been using; the reason being is the Sep '08 contract will begin its delivery period in the near future.  I entered the Dec '08 futures around a $1.00 lower than where I exited my Sep '08 futures yesterday so no big gains there.  I saw something that I didn't like in the charts this morning which trigger my action to go long the market again instead of waiting for $345.90 like I said I wanted to do yesterday.

The Dec '08 close in meal today would suggest a potential sideway's trade between $356.30 and $375.00.  I am looking for cautious trade tonight and tomorrow possibly following the direction of soybeans/crude oil.



Oct '08 Hogs Daily Chart
HOGS
Where do I start today?  Cash was around $2.00 cwt lower and cutout was down $3.93!  This isn't a prediction but $71.42 may come faster than I thought this week if the trade believes this afternoon's cutout number to be accurate.  The U.S. Dollar index continued to climb today but I am curious to see the weekly close on Friday.  If today was Friday and we closed at current levels I would say the weekly chart looked toppy.  We will see come Friday.  

Oct '08 hogs closed at $73.50 which is below my support level of $73.55 and would suggest a test of $72.30 then $71.42-.60.  I think we could see $72.30 with very little problem tomorrow and I wouldn't be surprised to see the $71.42 support area either.  The afternoon market isn't panicking right now only down $1.20 (.70 lower than the pit trade today).  The afternoon or "extended day trade" will close at 4:00 p.m. CST and re-open at 5:00 p.m. CST and trade until 4:00 p.m. tomorrow.    I don't have immediate access to the cutout history but I would bet this number today is one of the largest if not largest single day price drops in the cutout.  Wow, I still can't believe it.  I keep checking the website waiting the USDA to put out a correction! 

I would expect hogs to maintain weakness tomorrow and maybe make a run at limit lower.  I shouldn't say that because every time I seem to make a statement like this in my blog the market tends to kick me in the throat and walk away laughing.  It isn't a genius type statement to say that hogs look like they are in trouble but the path of least resistance is the direction they should trade and currently that is lower.  The wtd ave in hogs today was around $77.00 with October futures closing at $73.50 and the index is still at $86.90 as of this morning.  It shouldn't take long for cash to catch futures if it keeps taking $2.00 cwt off each day.  Best of luck to you and I hope you are or have been hedged!

Bottom-line: looking for hogs to trade substantially lower tomorrow if not limit.  

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
-----------------------------------------------------------------------
08/26       142.0      83.79  104.46   91.60  63.28 102.53 82.57  80.36
Change :               -3.93   -6.69   -4.75  -3.58  -4.97 -2.29  -3.78
-----------------------------------------------------------------------
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 :  1.81 lwr   :  1.95 lwr   :  1.97 lwr   :  1.83 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 70.50-80.41 : 72.00-80.41 : 70.50-80.41 : 73.00-80.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    77.54    :    77.09    :    77.26    :    77.97
--------------------------------------------------------------------------
Head Count      :   21,135    :    8,782    :   12,827    :    8,301
==========================================================================
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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