Hog & Corn Comments – 11/05/09 Another downside reversal in Dec ‘09 hogs
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CORN – Dec ‘09 Electronic
Open – $3.83 3/4, High – $3.87 1/2, Low – $3.76, Close – $3.76 1/2 Down $.07 1/2
Thoughts – Long Term (into December ‘09) – Sideways/Lower
Dec ‘09: Again we falter with good harvest weather in the forecast, the fund buying all but dead and the dollar index trading higher. The excitement wasn't there this morning before the market opened. The overnight session traded higher but ultimately settled unchanged going into the day session. As mentioned the weather is benefits better harvest progress for next week and if producers can get in the fields and actually keep going we could knock out a lot of corn in the coming days. Assuming the bushels are still there, we could/should see some hedge pressure come into the market due to the presumed excess of bushels that can't be stored on the farm.
As stated yesterday we exited our long corn futures and are waiting for an opportunity to jump back in, we haven't yet but we are monitoring it closely. We will see how the market acts around the $3.74 to $3.78 area over the next day or two and decide from there. If we close below $3.78 for two consecutive days, today being day one, then we have some support at $3.74 but ultimately $3.59 1/4. Don't be fooled, I'm sure we can change things back to the upside again if the weather should turn wet again but for now assuming it doesn't $3.78 needs to hold if the market wants to rally.
If you have no coverage I would suggest you talk with your broker and buy some out of the money calls for catastrophic protection if this thing really gets moving. If $4.13 1/2 is breached and we close above it for two consecutive days the markets next target is the summer high of $4.73 1/2.
Bottom line: I am looking for the market to experience an early low tomorrow.
Dec ‘09 Corn – Support/Resistance for 11-06-09
(R3) Resistance 3: $4.03
(R2) Resistance 2: $3.91 1/2
(R1) Resistance 1: $3.84
Today’s close: $3.76 1/2
(S1) Support 1: $3.72 1/2
(S2) Support 2: $3.68 1/2
(S3) Support 3: $3.57
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MEAL – Dec ‘09 Electronic
Open – $300.60, High – $301.50, Low – $291.20, Close – $291.20 Down $10.30
Thoughts – Long Term (into November ‘09) – Sideways/Lower
Dec ‘09 meal: Meal finally broke today and we exited our long meal position near where we got in around $297.50 basis the Dec '09 contract. The market looks like it wants to test the $288.80 number that it flirted with last week and if $288.80 doesn't hold support then we could test $283.40 and ultimately $266.10. I'm not confident that $266.10 is attainable at this point but it isn't out of the question. I feel we should see good support at $283.40 if we get there.
We will look to re-enter our meal hedges at a lower level unless the market tells us to do it before. Soybeans were hit hard today and got to almost 50% of a limit move which is how far the Dec '09 meal got, down over $10.00/ton at one point. Longer-term the weekly charts still point to higher meal prices as long as $266.40 holds in the Dec contract so any price breaks deserve attention if you need to lock in meal. As always make sure these statements hold true to you and your situation, I am purely giving opinions on market price and not the actual profitability of your operation.
Again as mentioned before it is basically up to the funds if they want to keep this market at this level, if their appetite for meal has expired then I would look for the market to back off but they are ultimately in control right now.
Bottom line: I’m looking for the market to experience an early low tomorrow.
Dec ‘09 Meal – Support/Resistance for 11-06-09
(R3) Resistance 3: $311.20
(R2) Resistance 2: $305.00
(R1) Resistance 1: $298.10
Today’s close: $291.20
(S1) Support 1: $287.80
(S2) Support 2: $284.40
(S3) Support 3: $274.10
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HOGS – Dec ‘09 GLOBEX
Open – $58.00, High – $58.40, Low – $56.575, Close – $56.60 Down $1.20
Thoughts – Long Term (into December) – Neutral
Dec ‘09 hogs: The Dec '09 hogs rallied on the open but that was as far as they got, it was all downhill from there. I was expecting an early low today which was the exact opposite of what happened. As I've been saying for the last couple of days we have been showing signs of a top but it is hard to make a call anymore because the funds buy when they want to buy regardless of fundamentals or technical considerations.
We had a downside reversal in hogs similar to the one we had on October 20th and we all know that was a good signal (insert sarcasm here). If the signal indeed is good then we should expect more selling tomorrow and begin trending lower from here. Again I have a tough time saying the rally is done because I don't know what the funds appetite for lean hog futures is so I'm hesitant. I've been saying for some time now to get hedge coverage in place via a known risk strategy and I still agree with that logic as the futures still have a lead on cash.
I hear rumblings of weaker product values coming but the cutout remains solid inching higher almost daily so this is another reason to have your upside open in case we see demand pick up further. I am expecting an early low tomorrow and we could rally back to $57.47 in the Dec '09 contract and if we fail to trade above that level for an hour or so then we could fall back toward today's low of $56.57 and try to make a new low. So watch for $57.47 tomorrow and if the market manages to trade above it for around an hour then we could remain firm the balance of the day but if it can't trade above this level for the same amount of time then we could fall off at the end of the day.
Under normal (what's normal anymore?) market conditions I would typically say that the $59.225 upside target area is off the table with the downside reversal we had today but I'm not going to say that just yet, I want to see how we close tomorrow first. The U.S. Dollar Index was hardly a factor today as it traded higher but nothing significant compared to the movement in recent days.
We remain in our synthetic put positions for now so we have downside risk protected in the market and the upside opportunity is completely open.
Bottom line: I’m looking for an early low tomorrow.
Dec ‘09 Hogs – Support/Resistance for 11-06-09
(R3) Resistance 3: $59.075
(R2) Resistance 2: $57.90
(R1) Resistance 1: $57.25
Today’s close: $56.60
(S1) Support 1: $56.00
(S2) Support 2: $55.40
(S3) Support 3: $53.60
(S4) Support 4: N/A
(S5) Support 5: N/A
(S6) Support 5: N/A
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