Hog Comments - 12-17-08 The U.S. Dollar index continues to fall apart!

CORN

Open - $3.97 3/4, High - $4.02 3/4, Low - $3.81 3/4, Close - $3.89 1/2.

I was out of the office yesterday so I didn't have any comments for you but I will tell you that I didn't expect yesterday's action.  I expected more of today's action to come yesterday however it didn't and we saw it today.  The market had a wild ride today as OPEC announced they will cut oil production by 4.2 million barrels per day from SEPTEMBER levels or 2.2 mbpd from current levels.  There was a major financial network that reported the cut at 4.2 mbpd for around 3-5 minutes before making the correction that it was 2.2 mbpd from current levels.

  

Why do I bring this up you ask?  The crude oil market was down around $1.50 when the news broke and within seconds it was up $.50 or so and it took corn from around .04-.05 lower to up .04-.05.  Once the actual news was reported that it was 4.2 mbpd from Septembers levels and not current levels the markets backed off considerably.  Corn traded as much as $.12 1/4 lower at one point today before recovering into the close.

I fell prey to the news announcement as I entered the market again to maintain feed coverage although I do have puts below the market to protect the downside risk.  It was my plan all along to re-enter but the news helped the decision as it was sizable enough to move the market.  I still have my positions in place and will hold them for now.  The market retraced 62% ($3.81 1/4) of yesterday's move and closed above the 50% ($3.85) retracement level which would suggest another test of the overnight high is possible.

 

Bottom line - I expect the market to open weaker tonight and test today's session low of $3.81 3/4 before finding support.  I think the weakness will come to an end before the market open tomorrow.  It could be one of those days where we gap open lower (from an intra-day perspective) and then move higher.  No major levels of support were broken today.

MEAL

Open - $262.00, High - $265.00, Low - $256.10, Close - $263.20.

I am still neutral on meal as technically it didn't look very good to me at the moment.  The market gave us a warning sign on Monday and then yesterday was a solid day of trade but today is another warning signal for Jan '09 meal.  I think I will be sitting on my hands in the meal market for now but may change my mind at the drop of a hat.

 

The U.S. Dollar Index is dropping hard again today, I must sound like a broken record but it has failed to find support.  77.88 is the 62% retracement level from the low at the beginning of the rally to the high, we are currently trading at 78.51 as I write this.  The next level of support if 77.88 is breached is 77.40 which isn't far below the retracement level and then down to 75.89 and finally back to the low for the move at 71.31.

  

Bottom line - I expect the Jan '09 meal to test $260.60 to $259.70 tonight and then find some support.  If the market stays above $260.60 then we could make a run at today's session high of $265.00 but I am in the be cautious camp based on the look and feel of the daily chart.  I still want meal coverage in place because of the falling dollar; I think it is only a matter of time before we make a good run higher.

HOGS

Open - $62.05, High - $62.70, Low - $61.95, Close - $62.625.  - Hog pit

It was an impressive trade day in hogs as far as I am concerned.  The market basically shrugged off the $2.30 lower cutout number from last night as well as some $2.50 + lower cash prices in the USDA noon report which is typically exaggerated one way or the other anyway and I guess the market is well aware of that.    The buying in the Feb '09 contract came later in the day which is a positive sign.

The cash market wasn't down as much as the noon report suggested and the cutout was down $.65 today but not near as much as yesterday's number.  I expect hogs to open a little better tonight and maybe trade lower toward $62.42 to $62.30 before finding some support.  My cycle indicator has the Feb '09 contract bottoming on the daily chart Friday of this week.  This is an indicator not a crystal ball so keep that in mind while making decisions, never base it all on one single indicator or you could be a stuck pig!

Bottom line - I think we will trade better tomorrow as the session progresses and like I said last week, the hog market has yet to respond to the weak dollar and it is only a matter of time before it does.  I am looking for an early low tomorrow and a late high.

Des Moines, IA     Wed, Dec 17, 2008     USDA Market News

USDA NATIONAL CARLOT PORK REPORT as of:  3:00 P.M.
Purchases equated to FOB Omaha Basis.

Compared to Tuesday's Close:        Fresh loins unevenly steady;
butts 1.00-3.00 lower; sknd hams 17-23 lbs 4.00 lower, 23-27 lbs 2.00-7.00 lower;
sdls bellies not established; lean trimmings steady to weak. Trading slow, with
mostly light demand and light to moderate offerings, except for sknd hams which
had heavy offerings.


-----------------------------------------------------------------
Loads PORK CUTS          :              76.5
Loads TRIM/PROCESS PORK  :              13.0
-----------------------------------------------------------------

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
-----------------------------------------------------------------------
12/17        89.5      56.33   78.20   65.13  36.55  90.77 37.24  66.85
Change :               -0.65    0.39    1.04   0.05   0.55 -3.73    unc
-----------------------------------------------------------------------

Des Moines, IA     Tue, Dec 16, 2008     USDA-IA Dept of Ag Market News

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 :   .11 lwr   :   .16 lwr   :   .47 lwr   :   .35 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 43.00-55.50 : 43.00-54.39 : 43.00-54.39 : 44.00-55.50
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    53.30    :    52.81    :    52.82    :    53.99
--------------------------------------------------------------------------
Head Count      :   20,801    :    9,502    :   12,262    :    7,552
==========================================================================

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.