Jeremy Knutson

Monday, September 8, 2008

Hog Comments - 09-08-08 - Ike moves toward the Gulf; how will the markets take it?

If you are coming to the blog directly, www.leanhog.blogspot.com or by bookmark/favorites, please update the link to www.leanhog.net.  I am looking at a different format for this blog to provide more useful information to you so www.leanhog.blogspot.com may become an old site.  I will let you know for sure if/when the time comes.  Thank you.

Hurricane Ike - stormtrack

The storm track of Ike has become more defined as it moves closer to the Gulf of Mexico (the graphic is the latest track).  Ike is currently over Cuba and is weakening which Hurricanes typically do over land.  Once the storm gets back into the warm waters of the Gulf it should pick up steam again and gain momentum back to a projected Category 3 storm by Wednesday evening or Thursday morning.  The track for Ike is in line with the Louisiana and Texas coast lines; this is where a majority of the Gulf of Mexico oil platforms are located.  The crude market seemed worried last night and early this morning about the storm but then the U.S. Dollar index EXPLODED, moving higher by 155 points at one time.  The Dow Jones was up around 350 points today only to back off as the day went on.  This on the coattails of the U.S. government taking control over the mortgage giants of Freddie Mac and Fannie Mae.  

 Dec '08 Corn Daily Chart
Corn opened higher last night due to the rally in crude oil which was due to the newest storm track of Hurricane Ike.   Once the day session got going the U.S. Dollar index began to rally something fierce and sent oil into a tail spin.  OPEC has a meeting tomorrow where it is widely believed they will cut oil production to defend a $100.00 price level for a barrel of crude oil.  I would like to point out corn, soybeans and meal all traded relatively well in light of a VERY strong dollar and weak crude market.  Hmmm, is there something brewing here?  Like I said last week, I am not a bear at these levels; however, we need to see the market close above a previous day's high before I can get very excited about the prospect of a rally.  If we fail to close above a prior day's high then we will slowly trend toward the low of $5.04 1/2 to see if we find support.  I have no technical backing for saying this but my gut says it will not get to $5.04 1/2 with all the things available to affect the market right now.  

Corn had an inside day today closing up 1/2 cent, this would suggest buying above today's high's tomorrow or selling below today's low's.  Elementary I know but technically this is what will happen.  An inside day suggests indecisiveness in the market and taking out a prior day high or low will give the market some short-term direction.  I feel the market could be lower tonight early but then find support and become stronger.  I have to say better trade tomorrow with the action we had today, U.S. Dollar index on fire and crude lower and corn actually traded $.06 higher for a few minutes around 12:50 p.m.  I think something else is going on in the market that is supportive and we haven't seen it yet.  I see better trade tomorrow.  

If you haven't purchased corn yet for feed you had better at least look at some call options here.  We didn't collapse when the other markets said we should, this could be the beginning of something bigger and the time to buy options is when volatility is low.  That time is now.  MAKE SURE YOU ARE COVERED FROM THESE LEVELS - USE OPTIONS.  Make sure you talk with your broker to make sure the positions I talk about are right for you in light of your current hedge program.  Always listen to who you work with over what you read, assuming you trust and believe in who you work with.

Extra note on corn... this is the same type of action we had when the market bottomed a few weeks back.  Big down day on Friday then a small trade range day on Monday with a reversal on Tuesday.  ??? Tomorrow is Tuesday but will the market reverse and move higher?  These are fun things to watch and pay attention to.

Dec '08 Meal Daily Chart
Meal never really got going in the overnight session nor did it in the day session.  I will say I am less concerned about a test of the $311.20 area because of Hurricane Ike (as mentioned above).  We had an interesting trade today were the low of the day was .10 below Friday's low.  Big deal you say?  This is a "needle" bottom or the potential for one.  Soybeans and meal rallied toward the end of the day because of rumors that we "are" going to have a frost on Sept 18th, 2008 which could affect the bean yields.  Also there are reports of poor bean yields in some fields in Ohio, but my thought it is still early.  Time will tell.  We did have a report this morning within our office network that there were lows of around 33 degrees last night in southern North Dakota but the damage if any has yet to be assessed. 

Corn, soybeans and meal all rallied today when the U.S. Dollar was making new highs and crude oil was $1.00 lower on the day.  This feels like something else is going on because by definition we should have been lower today with oil lower and the dollar higher.  I am not suggesting a blow and go type trade but I am getting more and more friendly as today progressed.  Soybeans have a potential double bottom so this will be an area of focus for the technicians of the world and should support the market.  I expect buying above today's highs tomorrow if we can get there and tomorrow could be our day that we close above a prior day's high.  GET MEAL COVERAGE IN PLACE IF YOU HAVEN'T ALREADY!!!  This is the type of market that could jump out and bite if you aren't paying attention.  Use call options if you can.  Make sure you talk with your broker to make sure the positions I talk about are right for you in light of your current hedge program.  Always listen to who you work with over what you read, assuming you trust and believe in who you work with.

Dec '08 Hogs Daily Chart
Hogs didn't have a lot of exciting trade today other than open higher for the day and sold off.  If you will look back to my comments on Friday I said if the market gapped lower and moved higher it would be a buy signal.  I also said if the market opened higher it would provide a good recipe for follow through to the downside which is what happened today.  The Dec '08 hog chart has a buy signal tomorrow at $68.50 which would be triggered by a stop order.  I don't think I would take this trade for now because of the overall negative feel to the hog industry (example, large 4th qtr hog projections and a sky rocketing U.S. Dollar).  I will respect the signal if it happens to trigger tomorrow but I will wait for further confirmation before I get too excited and exit any hedge positions.  We are still covered by call strategies in the Oct '08 contract and we have our short hedges for the year the Dec '08 futures contract.  

I have saved $2.00 cwt in hedge money by moving my Oct '08 hedges to Dec '08.  This means the Dec '08 futures has gone down $2.00 cwt more than the Oct '08 since Sept. 2nd, 2008 when I rolled short hedges from Oct to Dec.  It feels like we should be lower again in Dec '08 hogs tomorrow.  Cash was weaker at noon today according to the USDA.  I will be in meetings the balance of the day and into the evening so I am not sure if I will get the cutout values and cash price posted this afternoon so I will attach the direct link to view them.  They are release at 3:00 p.m. CST but for some reason they both seem to be released later than that.  Here are the links.

USDA - Hog Cutout   
USDA - Afternoon Cash Comparison

My posting time tomorrow and Wednesday will be later in the day if not evening because of meetings Tuesday and travel on Wednesday.  I will do my best to get them posted as soon as I can.  As always, thanks for reading.  If you have comments or suggestions please email me, jknutson@hurleyandassociates.com.  I know have people reading on a consistent basis but it is always nice to get feedback to make things better.  Thanks again and have a wonderful evening.


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.

1 comment:

matt said...

Jeremy, I am a hog trader that position trades the market on a daily basis. I will look at this blog on a daily basis to gather info. I get the cash as well as the cut out everyday however I am more of a technical trader. I dont really understand the fundamentals so I am glad I ran across your blog. I hope I can gain all the info I can. Look forward to learning from youy. I also feel the Dec hogs are very bearish. I believe we can fall a lot farther down to the 55 area. However, I am also afraid the dec hogs are trtying to find a bottom around here. I flattened up yesterday and I am not sure what to do from here, so I will try sand allow the market to tell me what it wants to do.