Hog Comments - 12-08-08 - Grains are higher but hogs are mixed.

CORN

March '09 corn didn't waste time deciding which direction it wanted to go today, it opened $.14 1/4 higher and it was the low of the day session.  Crude Oil and the Dow Jones had some influence on the corn this morning as they were both trading better on the day by the time corn opened.  It looks to me as if we should try to test $3.36 3/4 which is 50% of last week's trade range and then from there we look to $3.44 1/4 and then $3.68 1/2.

 

If we close above $3.30 1/2 by a few cents tomorrow I think we could look for a quick test of $3.54 1/2 before the market finds any good selling.  There is the resistance at $3.40 that I talked about early last week (it was support then) that we would still need to get through prior to making a solid run at $3.54.  The U.S. Dollar Index was down today and continues to look like it is topping in this area therefore I am looking to make sure I have significant feed corn coverage in place through an option strategy because this market will keep moving higher one of these days!

 

Bottom line - I have said before I am not bearish at these levels although the market has dropped further than I expected.  I still want to have good feed coverage in place for when the market gets going to the upside again. Today is only one day and we need to see good follow through before I am getting too excited about major upside in the market.  I do not want to be caught in the dark without coverage though, we have been screaming as livestock producers over the past year for cheap feed prices so let's not let it pass us by!  I look for better trade tonight and tomorrow and follow through on today's rally.  I wouldn't be surprised to see a test of $3.40 tonight or tomorrow in the March '09 corn.

MEAL

Jan '09 meal had strength for the same reason corn, it was because of higher Crude Oil futures and Dow Jones index.   I feel we could see the market test $244.40 early and then rally toward the $249.70 high we had today.  As I have said for awhile now (what turned out to be too early) I am not bearish at these levels and I would have call coverage in place for meal needs for a significant amount of time.

Bottom line - I look for a possible test of $244.40 tonight and then a test of $249.70 again either late tonight or tomorrow.  The market will also take direction from the Dow Jones and Crude Oil but both of which had a solid close today.  I expect higher follow through trade tomorrow in the Jan '09 meal contract.

HOGS

Feb '09 hogs opened $.10 lower in the pit and had a high of $65.40 but the Globex contract had a high of $66.475 which put the market up over $2.25 in the early part of trade.  The Globex contract didn't stay that high for very long and as stated the pit trade didn't get near that high so it must have been a market order and no liquidity that brought the market to those levels.

 

Cash hogs didn't do much of anything today as it was slightly lower and cutout was down $.69 for the day.  I expect the market to make a run at $64.40 and if we can close above it tomorrow I think we will head toward our high of $67.15.

Bottom line - I am looking for steady to better trade tomorrow in the Feb '09 contract.  The U.S. Dollar Index is down hard today and I am still of the opinion that the Dollar will continue its slide in the future.  I look for a test of $63.92 early and if that fails to hold then test $63.00 but I don't think $63.00 is likely.  I look for a test of $65.40 tomorrow more than a test of $63.00.  Bottom line is better trade tomorrow.

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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12/08        71.1      61.08   70.46   69.30  39.32  86.75 57.31  74.19
Change :               -0.69   -2.04    1.25  -1.05    unc -0.41  -0.51
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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 :   .06 lwr   :   .13 lwr   :   .02 lwr   :   .17 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 45.50-56.00 : 50.00-56.00 : 47.00-56.00 : 45.50-56.00
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    54.24    :    54.09    :    54.17    :    54.33
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Head Count      :   21,400    :    9,052    :   11,635    :    9,078
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