Hog Comments - 03-12-09 - Third straight day of higher cutout!

CORN - May '09 Electronic
Open - $3.64, High - $3.86 3/4, Low - $3.62 3/4, Close - $3.85 1/4 Up $.20 3/4

As a review from yesterday I said "The May '09 futures settled at $3.64 1/2 which is 1/4 cent above the 50% retracement level from our most recent low to our most recent high.  This area should provide support and if it doesn't we should see $3.59 1/2, $3.58 and $3.55 1/2.  I am looking for more weakness in the overnight and early day session tomorrow.  I expect a test of $3.59 1/2 at some point between tonight and tomorrow's close.  Support for May '09 corn is $3.62, $3.59 1/2 and $3.58.  Resistance is $3.66 3/4, $369 1/4 and $3.71 1/2.  I expect an early low and a late high tomorrow."

We didn't see a test of the $3.59 1/2 area like I thought we would but we did hold my first level of support at $3.62.  Once again the market blew through my resistance levels with no problems at all but the market action was exactly what I thought it would be an early low and a late high.  I purchased corn today at $3.79 which is higher than I would have liked but discipline said I needed to.  I also moved my put options from $3.60 to $3.80 to protect the downside risk of my long futures positions so now I have near a full position on in feed corn to protect me to the upside if the market continues its climb.  Rumor today is that a large, well followed firm will decrease its corn acreage estimate and therefore got the market going to the upside along with favorable outside market conditions.  

I have been saying for quite some time that I am not a bear at these levels but now we have made some major strides to begin to confirm this thought.  I wanted to see the market get above $3.68 before I got excited about a major rally and we obviously closed well above that today.  IF YOU DO NOT HAVE FEED CORN PROTECTION IN PLACE I WOULD AT MINIMUM BUY SOME OUT OF THE MONEY CALL OPTIONS!!!  We have finally broken our downtrend line that descends from our January '09 high and we have closed above it for the fifth consecutive day.  If we manage to close May '09 corn above $3.92 tomorrow or by next Friday then my next target is $4.40 May '09 corn.

Bottom line - Huh, where do I start?  If we open BELOW $3.86 3/4 tonight it will be a good open for follow through to the upside but if we open above that then there would be a sell signal at $3.86 that might be attractive based on the reasons why the market rallied.  Rumors that corn acres will decrease.  Again, I am not bearish here but the market rallied off of rumors so those that are in are already in and will probably sell to those who get in late tomorrow if the rumor is true.  My cycles tell me to look for an early high and a late low tomorrow (short-term) but market action looks strong.  I will go with follow through to the upside tomorrow ONLY if we open below $3.86 3/4 tonight.  SUPPORT should be $3.81, $3.78 then $3.75 and RESISTANCE should be $3.92, $4.03 then $4.08 1/2.  I think $3.92 is a possibility for tomorrow but I believe our highs will be in early in the day.

MEAL - May '09 Electronic
Open - $270.00, High - $276.40, Low - $268.60, Close - $276.50 Up $7.00

Reviewing yesterday I said "I am looking for continued weakness in May '09 meal tonight/tomorrow but I think we will see an early low and late high.  We are having a tough time closing above $271.00 to get anything going to the upside.  Support for May '09 meal should be $268.20, $267.20 and then $265.10.  Resistance should be $271.20, $272.10 and then $273.00.  I expect early lows and late highs tomorrow."

Not much different from the corn, the market was close to my first support level of $268.20 but above my resistance level by $3.50.  I missed exiting my short meal futures yesterday by $.10 which made for a tough pill to swallow today when I exited for a profit of around $.30 on the position.  I exited because I need upside coverage for meal and I only sold the futures so I wouldn't lose all of the equity in my $280.00 April call option.  I made a mistake, I said yesterday the April call expires next Friday but it is the following Friday the 27th.  Like corn, IF YOU DON'T HAVE MEAL COVERAGE IN PLACE WITH A KNOWN RISK STRATEGY I WOULD STRONGLY SUGGEST AT MINIMUM BUYING AN OUT OF THE MONEY CALL but talk with your broker to make sure it is right for your operation. 

Bottom line - We close above the $270.70 number I have talked about for awhile now so our next number to get to is $281.20 and if we can sustain trade above this number then could search out $325.30 again.  There are a lot of what ifs in that last sentence but that is how I see it developing.  Similar to corn the market needs to open up lower tonight to prevent a sell signal from forming.  If the May '09 meal opens higher (the higher the more bearish) tonight then there were be a sell signal at $276.00 on a stop with a risk management buy stop above the most current high to exit the trade if the signal is false.  I like the way we closed but I don't like that it was at the very high.  I am expecting an early high tomorrow and late low unless we get a big fundamental surprise.  SUPPORT should be $$274.40, $272.40 then $268.20 and RESISTANCE should be $277.30, $281.20 then $283.90.  

HOGS - June '09 GLOBEX
Open - $72.35, High - $73.90, Low - $72.25, Close - $73.75 Up $1.35

Reviewing yesterday I said "with packer margins still in the red I continue to have a negative bias toward the market because today's action didn't tell me much from a chart perspective.  We closed back above the $71.90 number I spoke of yesterday so we need to continue to watch this level to give us further direction.  Cutout was up $.98 today and it was up $.82 yesterday so we've had back to back days of higher cutout numbers which will be psychologically supportive to the market.  I look for early strength in the market based off of tonight's cutout number but I believe we will have early highs and late lows.  Support for June '09 should be $72.175, $71.70 then $71.47.  Resistance should be $72.675 then $73.25.  I am still not friendly hogs at these levels and I have a cycle high being put in tomorrow and then a lower trend into approximately March 27th.  Again I'm looking for early highs and late lows tomorrow."

I am eating my words today but I have to be honest with myself as well as you the reader and review what took place.  I thought we would see early highs and late lows however it was pretty much the opposite today.  I knew the market would be supported today because of two consecutive days of strength in cutout but I didn't anticipate the market to hold firm as long as it did.  I will say that now that the Goldman roll is complete we should get back to a functional market.  I have found that during the periods of this roll the market does strange things because they need to roll their long positions from the front month to the next and they are very good at getting this done.

I am still negative the hog market however I did add a call strategy to my short futures today because as I have said before, what I think and what the market does are two very different things!  I have upside in the June '09 contract up to $80.00 before I need to adjust my position.  I will stay with my negative bias toward the market until we close above $74.30 for at least two days and have sold trade action above it.  The weekly chart is showing signs of caution if you were long the market but I need to see tomorrow's close to be sure and it is a caution sign not a sell signal. 

Bottom line - I am looking for an early high and a late low in June '09 tomorrow.  On an hourly chart I have a sell signal at $73.90 STOP IF the market trades higher than that and comes back down through this level, the risk management buy stop would be $.25 above the current high if filled.  SUPPORT should be $73.27, $73.07 then $72.85 and RESISTANCE should be $73.90, $74.15-30 then $74.85.  I expect an early high and late low tomorrow.

I wrote my comments prior to seeing cutout and cash but when the information was released from the USDA the globex futures didn't do much.  Hmmmmm what do they have up their sleeve?  Did we see all the buying today and the insiders will sell it tomorrow based off of the big cutout number?  I smell something here, I will leave my comments as is.  

NW_LS500
Des Moines, IA     Thu, Mar 12, 2009     USDA Market News

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

Compared to Wednesday's Close:      Fresh 1/4" tirm loins 1.00
higher; butts steady to 1.00 lower; sknd hams 23-27 lbs steady to 1.00 higher,
other weights not tested; sdls bellies 14-16 lbs not tested, other weights firm;
lean trimmings 3.00 higher. Trading slow, with light to moderate demand and
mostly light offerings.


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Loads PORK CUTS          :             57.13
Loads TRIM/PROCESS PORK  :               6.0
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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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03/12        63.1      58.70   74.36   64.12  34.10  96.68 44.44  76.65
Change :                1.62    0.68    0.40   1.78  -0.32  4.36   0.97
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NW_LS831
Des Moines, IA     Thu, Mar 12, 2009     USDA-IA Dept of Ag Market News

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 :   .05 lwr   :   .87 hgr   :   .59 hgr   :  2.07 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 45.50-62.00 : 47.00-62.00 : 46.00-62.00 : 45.50-60.14
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    59.20    :    60.80    :    60.71    :    55.99
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Head Count      :   24,382    :   11,690    :   16,605    :    7,777
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