Dec '08 Corn Daily Chart
CORN Today proved to be an interesting day in the corn market, taking its early action and lower trade the weakness in crude oil and higher trade in the US dollar index. I said on Friday that I expected the corn market to open higher on Sunday night and eventually trade lower with support coming around $5.48 to $5.44. The low of the session on Sunday night was $5.45 3/4 which proved to be support for today's trade as well. I was looking for a place to reenter the positions I exited on Friday at $5.60 but before doing so I wanted to watch the first hour of trade. The first hour proved to be positive as the market gapped lower for the day sessions opening and traded higher into 10:30 AM. If today had been any other day I may have gotten in prior to 10:30 AM, however, Wall Street taking a major blow over the weekend I wanted to be cautious.
Merrill Lynch was purchased for $44 billion (I also hear it is now $50 billion) by Bank of America, Lehman Brothers went bankrupt and it saw its stock plunged 95% today. Lehman Brothers stock price at the end of December 2007 closed at $64.66, its closing price today was $.21. Another financial institution AIG, is also looking for cash to avoid major problems of their own. It is said the impact of AIG going under is bigger than both Merrill and Lehman. All of this being said, it made me want to hold on and wait for the 10:30 AM timeframe before making a decision to get back into the market.
Like I said, 10:30 AM showed positive signs but I saw warning signs in the daily chart. I decided to put my order at $5.60 and then replaced it $5.52 which didn't fill. I am not convinced corn made its full retracement yet and it is possible to see another test toward $5.48. I am debating but I may put an order in for $5.48 in the overnight to see if I can get filled. The reason I think there could be another test of $5.48 is because we closed below the 50% retracement level of todays trade range. Crude oil is down another $2.00 at $93.71 as I write this (6:43 PM CST) and the Dow Jones dropped over 500 points today. The Dow Jones was around 300 lower when grains closed today.
In relationship to the grains, it seems as though the trade is figuring on a smaller crop than what the USDA projected last Friday, they think it will continue to get smaller as time passes. I can't disagree but I will also say these crops seem to have 9 lives.
Bottom line: My thoughts for tomorrow are weaker and probably finding some support toward the middle of day trade and into the close. This assuming we don't have big negative news on AIG tonight or tomorrow. Be cautious in this area but make sure you have your feed needs covered in corn. I would suggest options if you can use them.
Dec '08 Meal Daily Chart
MEAL Meal again was the strongest link today. It looks like meal should be weaker tonight (which it already is) and start finding some support around $325 or so. I am still looking for meal to test the $347.40 area in the Dec '08 meal contract. I am posting my comments from Friday because nothing has really changed for me.
I believe this week will bring the opportunity to see $347.40 December meal at some point during the week, with the potential of reaching $353.90. These two numbers are the 50% and 62% retracement levels back to the high of $375 that was made on August 25, 2008. If the market get active next week and rallies to the $375 per ton mark, we would need to close above this level for the week to give us a shot at our old contract highs of $431.90 set on July 11, 2008. I do have to say that I do not expect a close next Friday above $375 per ton in the December contract.
Bottom-line: I expect Dec '08 meal to make an early low tomorrow and a late high. Make sure you have coverage in soybean meal via options if you can.
Dec '08 Hogs Daily Chart
HOGS
Dec '08 hogs opened higher today like I suspected and rallied but met little resistance in todays trade. If the market can make new highs tomorrow I would expect a test of $67.60 in the Dec '08 contract, this would be a 50% retracement back to the recent high of $70.72 made on Sept 3rd, 2008. The key as usual will be to get a close above a prior day high and that number for tomorrow is $66.70. Morning/noon cash reports didn't come out today due to more technical issues with the USDA (as I understood it) but the afternoon numbers were lower across the board. Cutout was higher by $.46 which is good considering the recent move higher in the US Dollar Index.
The US Dollar Index was lower today as well because of the Wall Street fallout but not before trading both sides of unchanged today and with some excellent volatility. It is difficult to even give a Dollar Index quote over the phone because it changes so fast and so far. It was moving 40 points at a time in some cases through out the day. As I mentioned last week, if we close this week below 78.22 in the US Dollar Index we could see more selling come into play.
Bottom line: Tomorrow I expect hogs to be better early because of increased margins today for the packers. Like I said cash was lower and cutout slightly higher. I don't expect fireworks to the upside tomorrow but I would expect buying above todays high of $66.70 (electronic pit).
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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09/15 87.5 76.20 92.85 80.33 59.57 86.29 75.79 77.04
Change : 0.46 -0.70 0.79 -2.76 -2.58 2.86 1.44
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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.
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BARROWS & GILTS : 1.28 lwr : 1.09 lwr : 1.45 lwr : 1.98 lwr
Negotiated : : : :
CARCASS BASIS : 60.75-72.00 : 60.75-72.00 : 60.75-72.00 : 61.50-68.92
185 lb Base Hog : wtd avg : wtd avg : wtd avg : wtd avg
Plant Delivered : 66.65 : 67.66 : 67.95 : 64.38
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Head Count : 24,567 : 11,707 : 15,621 : 8,926
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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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