Hog Comments - 01-05-09 - A pullback in hogs as grains end mixed.

CORN

Open - $4.12 1/4, High - $4.16, Low - $4.02, Close - $4.11 1/4 Down $.01.

Corn has traded sideways to higher since I last blogged.  March '09 corn had a daily reversal on Dec 29th but failed to get any downside activity going.  We have yet to make new highs above $4.23 3/4 which was set on Dec 29th, but the market seems like it wants to get there.

  

We had a wild first hour of trade today; we were all over the place.  The trade range for March '09 corn was $.09 but only close 1/4 cent higher than where it opened at 9:30 A.M. CST.  Technically the first hour was friendly and held the market firm for the balance of the day, actually trading higher for awhile.

  

The weekly chart showed me signs of caution if you are long the market. It didn't say sell, it just said be careful if you're long.  $4.04 is the 50% retracement level of last week's trade range and therefore support.  If the market continues to close above $4.04 then I would suspect a test of $4.23 3/4 at sometime in the near future.  If the market doesn't stay above $4.04 and closes below this level on Friday then I would say we could retrace back down to $3.64 in the March '09 contract.

Bottom line - I want to be very cautious up here based on last week's trade action.  It looks like we could be lower early tonight and have early lows tomorrow, but I feel tomorrow should be an up day in the March '09 corn.  I do have a potential sell signal at $4.15 stop tomorrow. First the market needs to make new highs above $4.16 and then come back down from there, creating the sell signal.  If I were to sell at $4.15 on a stop order I would have a buy stop loss above the current high when my order filled.  I have $4.00 call options in place for upside feed coverage which were converted from long futures we had on last month.

 

MEAL

Open - $302.10, High - $302.10, Low - $296.50, Close - $298.20 Down $2.00.

I see a warning signal on the weekly chart for March '09 meal which is the same warning signal I saw in the March '09 corn.  Today was the first time we have taken out a previous day's low since the day of the contract low at $235.00 on Dec 5th, 2008.  This doesn't mean the market is going to fall apart but it does show some signs of uncertainty.  The March '09 meal contract has traded above $300.20 four of the last five trading sessions and has yet to close above this level.

 

There is still talk of dry conditions in South America which is lending some support to the soybean complex but the market seems to have trouble with this $300.00 area.  I am long around 40% of my needs at this point and will watch for the market to tell me to buy more or exit my long positions.  As of right now I am on the side of the market looking to tell me to exit positions more so than keep them however I don't have any sell signals yet.

Bottom line - I look for a test of $296.30 at some point but I think tomorrows low will be in the first half of the trade session.  I am looking for meal to be stronger tomorrow but I need to see a close above Friday's high of $305.70 before I become friendly the market again.  I am very cautious right now.

HOGS

Open - $63.95, High - $63.95, Low - $62.40, Close - $62.675 Down $1.175. 

February and April '09 hog contracts had a huge day on Friday closing near limit up for the day.  The weekly chart looks positive to me assuming we can hold $61.40 as support (50% of last week's move).  The Feb '09 contract can retrace back to the $61.40 level and be fine technically but if we close a day or two below that level then I would be paying more attention to the possibility of another test of contract lows.  

I am not negative hogs based on the weak dollar and a projected reduced number of hogs for 2009.  I am not looking to be short hogs at this point however I have the luxury of changing my mind before I post on this blog so do what is right for your operation not because of what you read.  I still think we can test the most recent high of $67.05 in the Feb '09 contract but we needed a breather after Friday's big move.  

Bottom line - I am looking for tomorrow to be a better day in the Feb '09 contract but we may see some weakness early first.  I am writing these comments prior to seeing the end of day cash and cutout report so this may change my opinion but the techs are telling me early lows tomorrow in Feb '09 hogs.  I am not hedged in hogs at this time but will change my mind at the drop of a hat if I see something that I don't like.  I am looking for the $67.00 area in Feb '09 and/or the $73.00 area in Apr '09.  It looks like the Apr '09 may be a better hedge than the Feb '09 after this week.

NW_LS500
Des Moines, IA     Mon, Jan 05, 2009     USDA Market News

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

Compared to Friday's Close:         Fresh loins steady to weak;
butts 1.00 lower; sknd hams 17-20 lbs 3.00 higher, 20-23 lbs 9.00 higher from
last quote, 23-27 lbs 3.00 higher; sdls bellies steady; lean trimmings steady
with last quote. Trading slow, with light to moderate demand and offerings.



-----------------------------------------------------------------
Loads PORK CUTS          :              59.0
Loads TRIM/PROCESS PORK  :              24.0
-----------------------------------------------------------------

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
-----------------------------------------------------------------------
01/05        83.0      55.62   76.80   56.40  36.41  93.43 36.94  70.04
Change :                0.80   -0.56   -0.45   4.86  -0.97  1.96   0.06
-----------------------------------------------------------------------

NW_LS831
Des Moines, IA     Mon, Jan 05, 2009     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 :   .43 hgr   :   .18 hgr   :   .41 hgr   :   .80 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 40.00-55.55 : 40.00-55.55 : 40.00-55.55 : 40.00-53.38
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    51.27    :    51.65    :    51.95    :    50.10
--------------------------------------------------------------------------
Head Count      :   23,844    :   11,909    :   14,943    :    8,034
==========================================================================

 

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