Hog Comments - CFTC gets after a "hedge fund"??

CORN (click on chart for larger view)
Well I was right about the market being two sided today starting out higher and then trading lower BUT the part that I was off on, way off on was when I said that I thought we would spend most of the day trading better. Now, this could have been the case but rumor has it that there was a "hedge fund" that was reclassified as a "spec fund" by the CFTC and exchange liquidated 38,000+ contracts of November soybeans and I don't know the number of corn contracts or even if some of the 38,000 was actually corn too. Bottom line is that it sunk the market and fast and the trade never really recovered from the blow.

We got down to $5.22 1/4 today and I am still looking for $5.13-.15 area for some support (if we have any anymore). I hate to sound like a broken record but I think we could be lower again tomorrow with the action that we had today. Normally a market will establish a range and once it makes an extreme move (lower today) it will retrace and try to get 50% of the way back to where it started and test the trader sentiment at that level. Today corns 50% retracement level was $5.36 and after 11:00 a.m. today we only got as high as $5.31 3/4 so to me it shows the market is serious about its sell off. Expect sell stops below today's low of $5.22 1/4 and I would think good support at $5.13 if we get there.

Remember that we have a USDA crop report on Tuesday Aug 12th, 2008 and the market is absorbing the large yield reports out there so eventually we are going to turn to something that is bullish. Enter weather! The longer-term temperature maps are below normal temps. This doesn't mean we should get to excited but eventually we could lead to talks about an early frost. Just a guess on what the next "bull" story will be when the market has had enough to the downside.

I restructured my position today buy doing an option strategy that gets me long Dec '08 corn at $5.38 1/2 up to $6.10 and leaves me open to the downside to $4.33 1/2 Dec '08 futures. My other position that I have been updating you on gained just about .03 cents today and I am trying to liquidate it completely because it has done what I needed it to do. One thing to consider down here is if you have short call options anywhere above the market that have little value to them, take a look at exiting them to and get them off the table, if you have questions talk to your broker or give me a call. I don't want you exiting something that is part of a larger position.

MEAL
Meal just kept falling today as well, most of the selloff in my mind came from the fact that the CFTC liquidated the "hedge fund" in soybeans and it just collapsed the market in general. I took the liberty of buying a $340 Sep '08 call option today for $6.50/ton to make sure we have good protection going into the report next week. I am not suggesting we are turning here but I want to stick to good business practices and continually lower the ceiling cost of meal as the market allows, market opinion aside.

I just noticed that there was a buy signal in meal today at $328.00 which the market got below and then back through and would have been stopped in at $328 basis the Sep '08 contract. I didn't make this trade (because I just noticed it) but it closed above the $328 level like it should do if the signal is good. Now, the question is can it sustain its close above $328 tomorrow??? The intra-day charts tell me not so much and like corn there should be sell stops below today's low of $322.00 (this is where my stop would be had I taken the $328 buy). I can't say that I would have taken this trade today even if I noticed it during trading hours because the market is still trending lower, I want to wait for confirmation of a turn before I go against moment very aggressively, thus the call options that I bought today.

Looking for test of today's lows tomorrow unless we can sustain trade above $333.00 tomorrow then I would look for a bounce, other than that I think it is path of least resistance and the next support level for Sep meal is $309.00 if today's low doesn't hold.



HOGS (click on chart for larger view)
Let me replay the last sentence I wrote in yesterday's comments in hogs... "Afternoon fundamentals would suggest a higher hog market tomorrow and I will agree but not with any major rallies foreseen, (that type of statement is usually good for having the market ram it down your throat!) I would expect two sided trade in hogs tomorrow." I guess I was right but for the wrong reasons! I expected a higher market today but not this, up $2.40 cwt in Oct '08 hogs!!

Here is the fun part, I am a chart reader and I have a couple of things going on for tomorrow's trade. 1.) We currently have a potential (way early yet), potential double top with today's high of $77.40 and the previous high in June of $77.42. 2.) If the market trades above $77.42 tomorrow and then reverses itself and trades down below $77.42 I would have a sell signal at $77.15 STOP. 3.) If the market opens tonight's trade above $77.42 (which I believe it easily could) and then trades lower it is a sell at the same place, $77.15 STOP. If #3 happens it also involves the same signal in #2.

Tomorrow could provide a very interesting day. My feeling is higher unless #2 or #3 take place and then I would sell it because IF the signal is good it would suggest a violent move to the downside. The sell signal that topped the market in June was the same as #3 above. So, again momentum says higher but I am nervous about the three scenarios for tomorrow. These sell signals that I talk about should be viewed as STOP orders only because the signals are reactions to the market not anticipating the market. Let me know if you have questions, I can see where all these numbers and what if's can be confusing.

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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08/06        97.0      89.87  107.09   95.89  70.54  98.71 87.73  99.63
Change :                0.21    1.25    0.14  -0.46   1.35 -0.50    unc


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.
--------------------------------------------------------------------------
BARROWS & GILTS :  1.46 hgr   :  1.64 hgr   :  1.53 hgr   :   .75 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 73.00-87.50 : 78.25-87.50 : 73.00-87.50 : 77.92-85.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    83.50    :    84.71    :    84.52    :    80.85
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Head Count      :   24,487    :   14,372    :   17,722    :    6,765

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.