Hog Comments - 01-12-09 USDA spooks the grain markets.

CORN

Open - $4.11, High - $4.15 3/4, Low - $3.80 3/4, Close - $3.80 3/4 DOWN $.30 - Limit. 

The USDA provided the market with some bearish news today.  The USDA projected 2008/09 US Corn carryout at 1.790 vs 1.474 in December 2008, this is a gain of 316 million bushels.  Most of the increase in carryout came from a decrease in demand in the form of ethanol (100mb), feed (50mb), exports (50mb) and other factors.  The USDA dropped their projected price range $.10 on the both the high and low sides.

In last week's comments I talked about the market giving me warning signs from the previous week and the same went for last week.  The market did very little last week from an open to close perspective which again is a warning signal.  I protected my long call positions on Friday by selling an at-the-money March call and buying an out-of-the-money February call for a $.20 credit.  I entered that position to help my current call position in the event we had a negative report today which is exactly what happened.  I actually made $.05 on the overall position today and I will look for opportunities to adjust this in the near future.  We are completely open to the downside because we own $4.00 calls in February.  We converted our long futures positions to calls on the 29th of December to preserve the equity we gained in our futures positions.

Bottom line - I expect corn to gap lower tonight and move lower for the first part of trade and then find support as the evening progresses.  I don't expect limit down tonight and if it does I am a buyer on a short-term basis.  It looks like the market could easily test $3.68 and even down to $3.54 in the near future.

MEAL 

Open - $314.30, High - $321.50, Low - $294.50, Close - $294.50 DOWN $20.00 - Limit.

March '09 meal held in there quite nicely during the early portions of the day but fell to limit lower around noon and couldn't rebound from there.  I said last week that I didn't like the meal market unless we closed above $305.70 which we did on Friday afternoon but today would have been the deciding factor of whether or not to enter the market.  I actually purchased some $300.00 February '09 puts to cover some long futures positions I have on.  This was in the event of a negative report this morning.

Bottom line - I expect a gap lower opening tonight along with the corn and soybean market.  I expect the March '09 meal contract to move lower for a period and then find some support as the session progresses.  We had a key reversal today in the March '09 contract and I expect a test of $278.20 to $268.00 at some point in the near future.  Expect weakness early tomorrow and then settle in for steady to improved trade.

HOGS

Open - $68.50, High - $68.60, Low - $67.22, Close - $67.35 DOWN $1.25.

I have now turned my focus to the April '09 hog contract and it will be the hedge month in which most of my comments will refer to.  $66.57 is the contract low for April '09 and the market looks poised to test it being it isn't far away.  I look for some support at $66.57 but if we close a day below this level we could see more selling come into the market.  The cash and cutout market has been firming as of late but still has ground to make up to catch futures.

I am currently un-hedged in hogs and will be watching the $66.57 area closely and if we close below this level for the week then I will look into some hedge strategies by way of options.  I would use options because I am still not bearish the market and have been patiently waiting in the wings for a nice rally to sell.  I continue my wait.

Bottom line - I am not sure we will test $66.57 tomorrow because of the way my intra-day charts look.  I expect a test of this number but I don't think tomorrow is the day to do it.  It looks to me as if the market will trade better tomorrow and possibly up to $68.55 which may come later in the day.  I look for early lows tomorrow and highs to come later in the day.

NW_LS500
Des Moines, IA     Mon, Jan 12, 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 1/4" trim loins weak to
1.00 lower; butts generally steady; sknd hams 17-23 lbs not tested, 23-27 lbs
2.00 lower; 14-16 lbs not established; lean trimmings generally steady. Trading
slow to moderate, with mostly light demand and light to moderate offerings.



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Loads PORK CUTS          :              49.5
Loads TRIM/PROCESS PORK  :              30.0
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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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01/12        79.5      58.93   76.14   56.54  40.71  94.73 51.24  65.59
Change :               -0.12    0.27   -0.05  -0.69    unc -0.26  -0.49
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NW_LS831
Des Moines, IA     Mon, Jan 12, 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.
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BARROWS & GILTS :   .73 hgr   :  1.99 hgr   :  1.94 hgr   :   .51 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 43.50-60.81 : 43.50-60.81 : 43.50-60.81 : 44.00-56.76
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    56.50    :    58.49    :    58.65    :    53.06
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Head Count      :   24,946    :   11,998    :   14,888    :    9,048
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