Hog Comments - 10-08-08 - My quotes must not be working, grains were up?

CORN

Dec '08 corn struggled early in the session before it took some lead from soybeans and traded higher.  It is impressive in the sense that corn was stronger on the close more so than on the open.  Corn didn't close above yesterday's high of $4.29 3/4 but it did manage to match this level late in the day which is something we haven't done since Sept 24th!

If we have follow through tomorrow in corn and actually close above a prior day high ($4.32 1/2 was todays high) I will get pretty comfortable with saying we should start to shoot for $4.90 1/2 for a target level.  We would need to close above $4.90 1/2 for a day or two and if we can do that then we should look for $5.10 1/4 and ultimately $5.74 but let's not get ahead of ourselves yet, these are just resistance points.  I do think $4.90 1/2 is attainable if we can get a close above a prior day high, as of right now I will not rule out more downside until we get a close above a prior day high.

Bottom line - We had a good opening in corn tonight by opening $.01 lower and then moving higher from there.  We took out last nights high already and I would expect the market to continue higher or at least stay firm overnight.  It is interesting to note that it feels like the Ag markets divorced themselves from the outside markets particularly the Dow(n) Jones.  I liked the way we closed the market today and I expect follow through to the upside tomorrow with a POSSIBLE test of $4.48 which would be up $.20 1/2; this could be a stretch.  The market fell so fast that it's hard to find any near-term resistance points!

MEAL

Dec '08 meal had a spectacular night last night trading as much as $19.80 higher before closing $.70 higher overnight.  The day session in soybeans showed weakness at first only to fake us out and make a run higher which helped an already firm meal market.  If we can close Dec '08 meal above $276.60 tomorrow I would expect a chance at $293.30 at some point in the near future.

Unlike corn, Dec '08 meal closed above its prior day high (Tuesday's high was $260.00) and is showing continued firmness tonight.  The soybean market was up as much as $.63 last night before settling $.03 higher this morning.  Rumor was that the Chinese were in doing some buying but can't say this is fact because it was never confirmed to me so take it with a grain of salt.

  

Bottom line - I said in yesterdays comments that I thought we would see resistance at $261 or so in the Dec '08 meal and we did early in the session but blew through it later in the day.  I also said I would like to see a close above a prior day high which we got today and now I am much more friendly to soybean meal than I have been recently.  The market is higher overnight and I anticipate the strength to follow through into tomorrows session.  $276.60 is my first area of resistance and then it is on to $283.10 from there.  I wouldn't classify myself as bullish just yet but friendlier than yesterday now that I got the close I have been looking for.

HOGS

Dec '08 hogs opened stronger and traded stronger for most of the day, cash was pretty much a non-event at noon and there was little other news to make waves in the market.  The US Dollar Index was quiet today for a change and didn't give much direction one way or the other.  The cash market was weak in the east but had room to bid slightly in the west and even ended the day basically neutral to slightly lower because of the eastern cornbelt bids.

 

The trade we had today wasn't that impressive.  The candlestick left on the charts today in the Dec '08 contract would suggest the buying has potentially run out.  There isn't a strong sell signal but I would expect sell stops below $61.15 which was todays low on the Globex (electronic) chart.  I say this also because cutout came in $2.58 lower today which is a sizable one day drop, historically speaking.  This drop in cutout should take away a nice chunk of packer margin and the only way to get margin back is to lower cash bids or the cutout moves higher.

  

Bottom line - I expect Dec '08 hogs to be weaker tomorrow on the coattails of a lower cutout number and steady cash tonight.  $60.65 down to $60.25 are areas of support for the Dec '08 contract, we need to hold this level otherwise we stand to test the most recent lows of $58.77.  I would like to see how we act around the support levels I listed above before I get too excited about a test of most recent lows.

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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10/08        95.1      69.75   91.33   70.14  52.99  90.19 59.12  76.79
Change :               -2.58   -0.36   -0.68  -0.26  -0.31 -6.37  -4.88
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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 :   .78 lwr   :   .03 lwr   :   steady    :  1.73 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 55.50-70.00 : 55.50-70.00 : 55.50-70.00 : 57.00-66.57
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    65.94    :    67.62    :    67.63    :    62.71
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Head Count      :   23,187    :   11,986    :   15,208    :    7,979
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