Hog Comments - 02-20-09 - Hogs make a new contract low.

CORN - March '09 Electronic
Open - $3.53 1/4, High - $3.54 3/4, Low - $3.42, Close - $3.50 1/4 Down $.03

All I have to say today is Dow Jones.  The Dow Jones tested its November 2008 low of 7449.38 yesterday and made a new low of 7447.55 but managed to close at 7465.95 a few points above the November low.  Today was a different story; the Dow tested this level again and moved below this level with no particular concern.  We made a new low of 7249.47 which is still above the ever so important October 2002 low of 7197.49.  I have a buy signal (this isn't a recommendation) on the Dow Jones index at 7447 if we can get to this level either today or Monday.  If I were actually making the trade it would be on a buy stop with a risk management sell stop at 7220.

The Ag commodities markets in general took their lead from the Dow Jones today as everything was weak across the board.  March '09 corn made its lows early in the day trading all the way down to $3.42 before coming back some as we moved into the closing minutes of trade.  There was a buy signal (not textbook) on the daily chart at $3.46 3/4.  March '09 corn will need to stay above $3.46 3/4 on Monday for this signal to be good but the actual risk management sell stop would be at $3.41.

Bottom line - I spoke of the Dow Jones in my comments above but I was writing while the corn market was still open.  The Dow bounced off of its low and started a rally as the grain market was closing.  I expect March '09 corn to trade higher on Monday with an upside target of $3.56 1/4.  We should see buy stops triggered above today's high of $3.54 3/4.  We have been butting up against the down trend-line recently and that resistance level is $3.54 3/4 for Monday. 

  

MEAL - March '09 Electronic
Open - $277.40, High - $277.90, Low - $268.00, Close - $270.00 Down $6.50

$269.80 is a 62% retracement back to the low of $235.00 and today was our first test of this level.  March '09 meal barely closed above the retracement level but it did close above it.  The March '09 contract seems as though it wants to take a small breather here for the moment.  I don't expect any major rallies but I do look for a correction up to the $272.60 to $273.60 area with a possible test of $277.10.

I exited my long $290.00 March '09 puts today (because of expiration) and rolled down my long $320.00 April '09 call to an April $280.00 call for $6.50.  I also exited a short $350.00 May '09 call option I sold against my original long $320.00 April '09 call option.  I sold the call for $10.00 and bought it back for $1.00 so we had a profit of $9.00 to offset some of the cost of my original long $320.00 April '09 position.  The reason I sold the May call to help pay for the April call is I wanted upside coverage after I exited my long futures positions but I didn't want the exposure of a futures position.  I then put this call spread on ($320 April vs. $350 May) for a net cost of $5.50.  I also rolled the option down from $320.00 to $280.00 as mentioned above for $6.50 so I increased the cost of my $280.00 call option to $12.00 but I had a profit in our $290.00 March '09 put of $12.50 to cover my cost and move my ceiling down $40.00/ton.

Bottom line - As I said above I expect the market to be firmer come Sunday night and Monday.  I look for the $272.60 to $273.60 area to be tested with a possible test of $277.10 although I will not hold my breath for $277.10.

HOGS - April '09 GLOBEX
Open - $60.70, High - $61.00, Low - $57.90, Close - $58.20 Down $2.375

April '09 hogs have taken a nosedive since my last posting.  I said in my last posting the odds of an April '09 market bottom were increasing daily but I wasn't going to make that bold of a prediction to say the market had bottomed.  The market completely shrugged off last week's performance and took back all of the gains and then some.

I didn't like the fact that we challenged our contract low yesterday and then made new lows today.  I purchased some April '09 $59.00 put options for the time being because we violated our contract low.  I did this around the open of today's trade and I will hold these puts until I see signs of market improvement.  

Bottom line - I see the hog market making an early low on Monday and then firming as the day moves forward.  The cash was significantly lower today based on reduced kills but the cutout was only down $.22 so the packers regained some of their packing margin.  It is possible to see a test of $59.05 and then $59.45 on Monday.  

NW_LS500
Des Moines, IA     Fri, Feb 20, 2009     USDA Market News

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

Compared to Thursday's Close:       Fresh bone-in loins not tested;
butts 2.00-3.00 lower; sknd hams 20-23 lbs steady to firm, 23-27 lbs steady;
sdls bellies 14-16 lbs steady; lean trimmings 2.00 lower. Trading slow, with
light to moderate demand and mostly moderate offerings.



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Loads PORK CUTS          :              43.0
Loads TRIM/PROCESS PORK  :              10.0
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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
-----------------------------------------------------------------------
02/20        53.0      57.00   72.83   62.72  35.89  99.84 41.03  72.26
Change :               -0.22    0.76   -1.03  -5.17   0.39  1.00    unc
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NW_LS831
Des Moines, IA     Fri, Feb 20, 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 :  2.23 lwr   :  3.02 lwr   :  2.93 lwr   :   .18 hgr
Negotiated      :             :             :             :
CARCASS BASIS   : 46.50-62.90 : 46.50-62.90 : 46.50-62.90 : 47.50-57.50
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    56.61    :    57.14    :    57.42    :    55.63
--------------------------------------------------------------------------
Head Count      :   23,888    :    9,076    :   13,302    :   10,386
==========================================================================

 

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.