Hog Comments - 11-18-08 - Does the hog market still trade?

CORN

Corn had a pretty quiet day today all things considered.  I expected early lows today and late high's but there really wasn't a great deal of movement.  I said yesterday I thought we could test $3.78 either last night or today and our low was $3.78 1/2, which is close enough in my book.  I thought we were going to see more weakness in the overnight instead of in today's session.

I am still looking for lower prices tonight and into the first part of tomorrow's trade.  I wouldn't be surprised to see corn drop toward $3.75 and then down to the $3.71 area.  I don't expect a blow and go type trade but instead some weakness that drags us down to these levels.  The Dow Jones rallied and closed near its high today in its last hour of trade so it should bring some strength to the overnight grain markets on the open.

Bottom line - I expect Dec corn to be weak tonight and early tomorrow but I don't think we will get carried away to the downside.  I also think March '09 corn has a chance to see support at $3.95 and then $3.93.  My thoughts for the March '09 corn are a mirror of my comments on Dec '08, early low tomorrow and then move higher from there.  I think we have a reasonable shot at $3.93 but if we can't break $3.95 it might bounce at that level. 

MEAL

I said yesterday I expected a test of $267.40 and then $264.60 in the Dec '08 contract.  We made a low of $266.90 today and closed right at my number of $267.40.  I still think we will have a shot at the $264.60 number before we turn and move higher.  I think our high in the overnight will come early and we will have a late low by morning.  I think the day session for tomorrow will bring early lows and late highs.

Bottom line - I am not extremely bearish meal at this level but I am not immediately friendly either.  I think we have the chance to reach as low as $258 on this move before we find solid support.  I think tomorrow's low should be around $264.60 to maybe $262.00 in the Dec '08 contract.  Look for early lows and late highs tomorrow.

HOGS

I said yesterday I thought Dec '08 hogs could trade down to $54.87 and also that our low of $53.80 would probably hold as our contract low.  We only got as low as $55.05 (Globex) and had a very narrow trade range for the day.  It is almost as if people have started the Thanksgiving holiday early this year and there isn't anyone around to trade the market.

My views from yesterday haven't changed much, I still think the low for the Dec '08 contract are in and now it is a question of the Feb '09 contract and where it's headed.  From what I see the Feb '09 contract has support at the contract low of $60.50 and resistance at $63.82.  This support and resistance window is the area in which I think we could bounce around in for the time being until we get further direction.

Bottom line - I am looking at moving my futures positions from Dec '08 to Feb '09 in the near future but I haven't made the move just yet.  I will keep my hedges in the Dec '08 contract unless we get a close below $61.70 in the Feb '09 contract and then I will move them to the Feb '09 futures.  I expect lax although firm trade again tomorrow for the Dec '08 contract but the Feb '09 could have a bit more get up and go with the cutout being up $.99 today.  Resistance in Feb '09 hogs is $62.80 and then $63.05 for tomorrow's trade. 

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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11/18        83.4      56.70   73.25   62.83  41.39  86.49 43.54  63.63
Change :                0.99    0.48   -0.10   6.26   0.44  0.92  -0.37
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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 :   .91 lwr   :   .57 lwr   :   .94 lwr   :   .06 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 39.00-54.25 : 39.00-54.25 : 39.00-54.25 : 44.00-50.68
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    50.45    :    51.68    :    51.64    :    48.47
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Head Count      :   24,330    :   12,797    :   15,715    :    9,155
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