Hog Comments - 10-02-08 - The only thing gaining value today were put options!

CORN

It didn't take much to get corn rolling to the downside again today.  I waited for the Senate vote last night and after the vote the bill passed but it didn't seem to affect the markets at all.  The talk as I understand it is the market isn't sure the House will pass the bill on Friday.  The "sweeteners" the Senate added to the bill to entice more Republicans might turn off some of the Democrats that voted yes in the House.    My head hurts from all of this stuff.

Dec '08 corn couldn't hold its $4.84 support level today and the market dropped the daily price limit of $.30.  My next target for corn is at $4.35-$4.37 which is now in reach for tomorrows trade if things are still negative.  As of right now I can't find anything positive about this market.   I don't still don't think fundamentals matter right now and we are in fund liquidation mode.  People are pulling their money out of stocks, commodities, you name it.  I honestly thought we would see some support from the Senate vote last night more as a vote of confidence in the market but nobody seems to care today.

Bottom line - I expect a lower opening tonight, probably come back and test todays low of $4.54 to fill a gap and remain negative for most of the overnight session.  I would imagine some eyes will be on the House vote tomorrow but I am not sold on that idea either.  We are going through the cleansing process for this market and it needs to run its course.

MEAL

Dec '08 meal held in there fairly well considering corn was limit lower and soybeans were down $.49.  There are still many reports of lower yields coming in so I am not convinced that this market is going to stay lower for an extended period of time.  Our next target is $250.00 if we don't hold the support at $271.50 which is a 62% retracement back to our contract low of $172.00 from September of 2006.

Bottom line - I expect Dec '08 meal to open slightly higher tonight only to back off and test todays low of $271.50.  If the support holds I would expect a mild rally but nothing of any concern to the upside.  I will wait for a day that we close above the prior day high before I get excited about a rally or move higher.  I do think that we will have a good rally after all of the fund liquidation is over and all of this bailout talk is done.

HOGS

Dec '08 hogs were weak right out of the gate today opening $.97 lower.  The market took a pretty good hit on the chin today after we took out yesterdays lows like I talked about yesterday.  There was good selling today and not much optimism throughout the day.  The noon cash reports has cash hogs lower by approximately $3.00 per cwt and that got the market moving further to the downside.  

The afternoon cash report had cash hogs mostly $2.00 per cwt lower and cutout up $.29.  We made new contract lows today and rallied some into the close but not enough to get excited about.  Again, like corn and soybean meal, I will wait until I get a close above a prior day high before I get excited about any major rallies.

  

Bottom line - I don't expect hogs to trade significantly higher tomorrow, some recovery wouldn't surprise me but I don't expect much.  If cash continues to be weak and the US Dollar Index remains firm (new highs for 2008 today) I can't see hogs getting carried away to the upside.  I expect sideways to lower 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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10/02        80.0      73.14   91.44   71.13  53.88  87.94 68.38  82.47
Change :                0.29    2.18   -0.59   0.49   0.12 -0.67    unc
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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 :  2.27 lwr   :  2.24 lwr   :  2.25 lwr   :  1.80 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 58.00-72.64 : 58.00-72.64 : 58.00-72.64 : 59.00-68.92
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    67.78    :    69.06    :    69.18    :    65.50
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Head Count      :   20,314    :    8,394    :   12,586    :    7,728
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