CORN Corn didn't have much of a day today other than opening .06 higher and ultimately got as much as .09 higher before making a run at yesterday's low of $5.88 which I talked about in yesterday's posting. I sold Dec '08 corn today at $5.95 (exiting buy stop at $6.05 1/2) as a delta hedge against my long call spread I have on. I am trying to protect my equity in this option strategy if the market moves lower. What I mean by delta hedge is if I have 100 corn call options on and my delta is 30% that means for every .10 cents the market moves my calls will change .03 cents in value or 30% of the futures move. To "hedge" my delta I would need to sell 30 contracts of underlying corn futures contract to neutralize my position. The delta changes with price so it's a moving target but when I hedge the delta it neutralizes my position. It needs to be managed, it isn't something you do and forget about. Please do not try to delta hedge a position if you are unsure of what you are doing, it may cause your position to act in a way you didn't think it would!
I am looking for a move toward $5.81 and eventually $5.65 before we really bottom the corn market from a short-term standpoint. I am writing this posting at 8:00 p.m. CST and corn is down 1/2 cent with 1004 contracts traded in the Dec '08 futures. I am skeptical of a rally in the corn market but am willing to admit I am wrong at the drop of a hat to go long if I need to. My ONLY concern right now is the prospect of frost. I think we all know this will be a source of speculation by the trade in the coming weeks; therefore it will be tough for the corn or soybean market to fall out of bed. I think corn will still be indecisive tomorrow probably trading both sides but still favoring a downward bias.
Dec '08 Meal Daily Chart
Soybean meal can't make up its mind either. It has been independently strong over the last couple days but today traded right along with soybeans and corn. I sold soybeans and soybean meal today. I exited my meal positions at $367.00 today for breakeven to a very small gain on the trade, I didn't like the way the market was acting and it turned out it was a good move as the market closed at $365.00 today. Meal looks short-term toppy to me. I think we could see lower trade tomorrow on a push toward our $360.40 low of today. I will TRY and wait for $343.30 to look at getting long again. As usual, I will admit I am wrong and take a position on the long side if the market tells me to. I feel the same way about soybeans; it looks like we are at a short-term top in the market which is why I went short the market today at $13.45 (exiting buy stop at $13.73) in the Nov '08 contract. I usually wait for the first hour of trade to end before I make a trade decision in the market. The first hour trade range was established and $13.45 was around 50% of the way back to the high we had early in the day. I expect lower trade from soybeans and meal tomorrow. Currently Nov '08 beans are down .07 and Dec '08 meal is up .10 cents.
Oct '08 Hogs Daily Chart (pit chart)
HOGS
All of my support points were blown through today. Oct '08 hogs opened $1.80 lower and traded $2.35 lower then came back and was trading $1.90 lower all within 10 minutes of the open. I thought okay, I said yesterday in my comments that hogs could reach limit lower today and usually when I make a statement like this the market proves me wrong! It didn't take very long before Oct '08 traded limit lower and locked there and never looked back. Oct '08 is trading $1.50 lower tonight in the Globex trade which places the futures at $69.00. I said my next level of support was ultimately $68.25 in the Oct '08 futures and our overnight low is $68.82 so far. I would expect another burst of selling tomorrow as cash was down around $3.82 today and cutout was down another $2.05!
I expect tomorrow to have another tough day but I don't know as though we will be able to lock limit lower like we did today. The weighted average cash price on hogs is said to be at $73.42 cwt in IA/MN per the USDA and the Oct '08 futures closed at $70.50 so the cash markets lead on futures has narrowed significantly. If the futures continue to tumble below a limit move tomorrow then the trade must REALLY be anticipating a larger move lower in cash. We are and have been hedged on all of our hogs in inventory and then some which felt good today in the face of these markets. We will be looking for a place to exit our short hedges and replace our hedges with put options or another type of option strategy so we can maintain the equity of the futures positions that we have gained in recent weeks. I think this market is too volatile to not have any hedge coverage in place therefore I would suggest using some catastorphic option protection below the market if you choose to remove your hedges and take profit on them. If you want ideas of what to do and when to do it feel free to give me a call and we can discuss a strategy, my toll-free number is 1-877-212-2564.
In summary, I expect corn to be mixed to lower tomorrow, soybeans and meal lower and hogs lower but I don't think we can lock limit lower for a large portion of the day. I think if we touch limit it will be early in the session and then bounce because of bottom picking traders. If cash remains weak at noon or the notion of lower cutout again tomorrow night then maybe we could lock it limit lower but for now I will say lower and possibly touching limit but not locking limit lower like we did today.
NOTICE - MY POSTING MAY BE LATE AGAIN TOMORROW BECAUSE I WILL BE TRAVELING FOR MEETINGS MOST OF THE DAY. PLEASE CHECK LATER IN THE EVENING FOR MY COMMENTS. AT SOME POINT TOMORROW I WILL TRY TO GIVE YOU AN IDEA OF WHEN I WILL POST COMMENTS, SIMILAR TO WHAT I DID TODAY.
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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08/27 120.4 81.74 103.54 84.45 66.68 97.98 76.25 82.43
Change : -2.05 -0.92 -7.15 3.39 -4.55 -6.32 2.07
-----------------------------------------------------------------------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 : 3.23 lwr : 3.84 lwr : 3.66 lwr : 2.71 lwr
Negotiated : : : :
CARCASS BASIS : 68.50-80.20 : 68.50-76.00 : 68.50-80.20 : 72.00-78.50
185 lb Base Hog : wtd avg : wtd avg : wtd avg : wtd avg
Plant Delivered : 74.36 : 73.42 : 73.71 : 75.27
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Head Count : 20,596 : 9,046 : 12,083 : 8,513
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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.
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