OUR SITE HAS MOVED TO A NEW LOCATION!

THIS SITE HAS OFFICIALLY MOVED TO WWW.LEANHOG.NET. ALL FUTURE POSTS WILL BE POSTED ON WWW.LEANHOG.NET. PLEASE CLICK HERE TO GO TO OUR NEW SITE.

WE HAVE MADE MANY CHANGES TO THE FORMAT, LOOK AND FEEL AND CONTENT OF OUR NEW SITE SO PLEASE TAKE THE TIME TO CHECK IT OUT, I THINK YOU WILL ENJOY IT. THANK YOU!

Jeremy Knutson


Friday, September 5, 2008

Hog Comments - 09-05-08 - Grains continue to fall and hogs are mixed again.

Dec '08 Corn Daily Chart
CORN
Grains in general this week are making me look like an idiot here.  The market gave me three signals over the last couple of days that suggested a move higher.  I don't have to repeat what took place.  I guess technical analysis is a study of probability and nothing is ever 100% and this week was proving that to me.  I liked the close we had yesterday but when the overnight opened we were down $.02 cents and never looked back.  I still didn't do anything to change my position with my long futures at $5.66 3/4 because I am still not a bear, I only have 1/2 of a position on we it still benefits me if the market moves lower from a cost average perspective.  The only problem is I hate to be wrong although I learn to accept it and move on.  It doesn't pay at all to focus on what you should have done, it doesn't make you any money, it befeifts you to focus on what you should do to manage your position. 

With the close we had today at $5.48 1/2 it would suggest a test of $5.04 1/2 if we can't close above $5.52 early next week.  I would really like to see a close above $5.65 vs. the $5.52 but days like today make it tough to believe the market will have enough power to get there.  The rumor in Chicago is that some Index Funds are unwinding their positions and either closing out or going broke.  The funds sold 7,000 contracts of corn on Tuesday and Wednesday, bought 2,000 contracts on Thursday and sold another 7,000 contracts today.  If the head and shoulders pattern I have been talking about is still going to form then we'd better rally soon or the pattern is going to look ugly and eventually not even form.  

I am still friendly the market long term but now I will wait for a day that we close above the prior day's high.  I am looking to buy the $6.70 Dec '08 call I sold last Friday against my long $6.10 Oct '08 calls I own.  If I can buy the $6.70 calls for around $.05 or less I will buy them back to get them off the table.  This means I will only have paid $.05 1/2 for my $6.10 Oct '08 call instead of the original sticker price of $.21.

I am looking for next week to give us an early low and a late high for the week.  The USDA will release its monthly Crop Production report on Tuesday and I don't expect them to give a larger yield to corn than they did in August.  Informa was out today and pegged the U.S. corn crop at 156.5 which is on the VERY high side of industry guesses.  I don't think $5.04 1/2 is out of the question next week for a test if the market still wants to be weak but I don't think we can move below this price and stay there.  I am looking for another bounce in the market in the coming weeks.


Dec '08 Meal Daily Chart
MEAL
Meal made me look just as stupid today as it did yesterday but again like corn I am not a bear at these levels and I will keep my hedges in place.  Market opinion can change on a dime, we have all seen it before and I don't want to be left out when the market turns.  I don't want to exit a hedge position with a loss only to have the market reverse on me and move higher which makes me have to decide whether or not to get back in the market.  I don't like being in that position.  If I do chose to exit it will only be for a short period and I will have a stop in place if I am wrong.

The commodity funds sold approximately 5,000 contracts of meal this week and are net long around 35,000 contract of meal.  After today's trade action, the Dec '08 contract looks like it may want to test the recent low of $311.20.  The same rule applies to meal as it does in corn, we will probably keep moving lower and I will not get excited about a move higher until we close a day above a prior day's high. 

I look for Dec '08 meal to be weak early in the week with a chance to rally toward the last half of the week.  Tuesday's USDA yield estimate on soybeans will give meal more direction for the second part of the week.  I don't expect the USDA's numbers to be as bearish as Informa's numbers today.  Informa pegged the U.S. soybean yield at 41.4 this morning which led to the massive selloff in soybeans and meal.


Dec '08 Hogs Daily Chart
HOGS
Dec '08 hogs closed lower today after opening higher and having positive price action during the first hour of trade.  It wasn't a volatile trade today but the first hour was were most of the strength was.  The trade got weaker as the day went and ultimately closing just off the low of the day.  The one thing that is important about closing at the low of the day and especially the low of the week is if the market gaps lower on Monday and then trades higher through today's low of $68.22 then we could find some buyers come into the market. 

The spread between the Oct '08 and Dec '08 contract got wider again today closing at $1.25 invert (Oct over Dec) and I rolled my short hedges from Oct to Dec on Tuesday at a $.60 carry (Dec over Oct).  This means I saved $1.85 in margin calls by having my short futures in Dec instead of Oct this week.  I still have most of my long call options in Oct for now and will keep them there until I see something that changes my mind.

I am torn with next weeks trade action because as I said earlier if we gap lower and trade higher we could see some buying surface but if we open higher it would be a good opening for follow through to the downside.  I still feel like we could see a bounce within the coming weeks that should be sold and not be mistaken for the beginning of a rally.  I will treat any bounce in the market as a selling opportunity (which I won't sell because I am already hedged).  

Cash has shown some life according to the USDA and the cutout was actually higher today so this should keep the Oct '08 contract supported at its current level in the short-term.  There is still a long time before Oct '08 hogs go off the board.

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
-----------------------------------------------------------------------
09/05        74.0      77.27   96.19   84.39  63.18  92.22 72.14  77.50
Change :                0.07   -1.01    1.00   1.39   2.44 -0.18   0.08
-----------------------------------------------------------------------
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 :  1.13 hgr   :  1.13 hgr   :  1.23 hgr   :   .43 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 63.00-75.00 : 63.00-75.00 : 63.00-75.00 : 66.56-73.49
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    72.03    :    73.04    :    73.06    :    69.77
--------------------------------------------------------------------------
Head Count      :   38,043    :   19,855    :   26,300    :   11,553
==========================================================================
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.

No comments: