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CORN – Dec ‘09 Electronic
Open – $3.05 1/4, High – $3.10 3/4, Low – $3.02, Close – $3.07 1/2 Up $.01 1/4
Thoughts – Long Term (into December ‘09) – Sideways/Lower
Tuesday I said: “Dec corn has been treading water for the last week or more and not giving any good indication to direction. As I’ve mentioned before I am not bullish corn given the state of the crop and the only thing that I see changing that is an early frost. The longer-term forecasts have moved some heat back into the system and some private forecasters are saying the chance of an early frost that would hurt corn is minimal.
We have plenty of corn to go around and I think there will be a test of the $3.11 1/2 at some point in the near future. We are currently delta neutral in corn but do have some underlying options positions in place to give us upside if needed.”
Dec ‘09: “Dec ’09 showed some life early in the trade session only to be met with resistance. Since 1989 December corn has moved higher 6 years and lower 15 years from the Sep 1 to Sep 15. The average up move is $.06 3/4 and the average down move is $.10 1/4 with the maximum move higher during this time frame being $.09 1/2 and the maximum move lower being $.24 1/4. The December ’09 contract was $.13 lower on Friday’s close compared to the close on Sep 1. 2004 was the year with the maximum down move of $.24 1/4 and from Sep 1 to Oct 1 that year the Dec contract fell $.36 3/4.
Seasonal tendencies under normal circumstances give us a general idea of what could happen. I am of the opinion that this year is similar to 2004 with the crop potential and price pattern etc. If we don’t see an early freeze somewhere to take away some of the crop that is out there we need not look for much of a rally in the corn market. I can’t say we will not rally at some point but we could see a steady decline into the first part of December. If we have wide spread early freeze then all bets are off and we need to assess the situation at that time but for now I think we grind lower.
Friday had a buy signal at $3.12 1/2 stop in the Dec but it was never touched so the trade was never taken. At this point I’m looking for the Dec ’09 corn to make a move toward the $2.90 area and then from there $2.75. I really don’t have much good to say about corn right now.
Bottom line: I am looking for the market to experience an early high tomorrow.
Dec ‘09 Corn – Support/Resistance for 09-09-09
(R3) Resistance 3: $3.24 1/2
(R2) Resistance 2: $3.15 1/2
(R1) Resistance 1: $3.11 3/4
Today’s close: $3.07 1/2
(S1) Support 1: $3.03 1/4
(S2) Support 2: $2.98 1/4
(S3) Support 3: $2.89 1/2
MEAL – Oct ‘09 Electronic
Open – $287.70, High – $294.20, Low – $284.00, Close – $290.30 Up $3.10
Thoughts – Long Term (into November ‘09) – Sideways/Lower
Tuesday I said: “The Oct ‘09 contract moved low enough to test the window of support that I spoke of last week (see above) and should continue to test this area tomorrow. It looks like the market should provide an early low tomorrow and retrace some of today’s losses. If we close below $297.00 again tomorrow then I am looking for the $281.50 area to be tested in a relatively short amount of time. I purchased a call spread on Friday of last week to get us through the weekend and any potential changes in the forecast as it pertains to frost and the forecast looks fine for now.
We will keep the call spread in place and buy back the sold call if it gets to a price that makes sense to do so. I am still not bullish soybean meal but we are still in the wedge formation that continues to form on the weekly chart. We will continue to monitor this pattern as we move forward.”
Oct ‘09 meal: The Oct contract did close below $297.00 on Wednesday of last week and I said if that was the case I would be looking for $281.50 to be tested. We hit $284.00 as a low today which also ended up being an up-trend line for the contract. As of this point I don’t have any reason to believe we will not test $281.50, however, $284.00 could be viewed as close enough. I don’t have any reason to change my $281.50 opinion as of yet but the trade action today was okay and we continue to build on the wedging pattern that we have on the weekly chart.
Because of the wedging pattern and potential for frost I do think upside coverage is warranted but I wouldn’t be aggressively long via futures or extended cash coverage at this time. I’m still negative to the meal market for now but it is beginning to feel like the $281.50 area may hold support for now. We will continue to monitor the situation and comment accordingly.
Bottom line: I’m looking for the market to experience an early high and late low tomorrow.
Oct ‘09 Meal – Support/Resistance for 09-09-09
(R3) Resistance 3: $310.20
(R2) Resistance 2: $300.00
(R1) Resistance 1: $295.70
Today’s close: $290.30
(S1) Support 1: $285.50
(S2) Support 2: $279.60
(S3) Support 3: $269.40
HOGS – Oct ‘09 GLOBEX
Open – $50.55, High – $51.55, Low – $50.25, Close – $50.975 Up $.475
Thoughts – Long Term (into December) – Negative
Tuesday I said: “The market doesn’t want to move lower at this time and it surprises me to a degree because of the time of year. Volume has been decreasing since August 19th which is when the October contract started to rally. If the market is moving higher you would like to see the volume increase as well but it hasn’t. The Oct is also in overbought territory which is the first time it has been overbought since July 17th when the market last peaked before the most recent downturn.
October has now closed above the $49.00 for the first time and I would like to see it happen again tomorrow before I change my opinion of the October contract to slightly friendly. The sad part of it all is that I can’t find good news to support higher prices other than we’ve enjoyed some higher cash bids recently but we also have to consider Labor Day weekend as a probable part of the recent gains in the cash market. Packers are still making good money and killing a lot of pigs so it will be interesting to see if we can keep this pace after Labor Day.
I just looked at the pork cutout number after writing all of the above statements and I don’t have much more to add. Cutout was down $3.11 on 106 loads today and the cash market was nearly $2.00 higher. This should pretty much erase most of the packer’s margins if the cutout number is true.”
Oct ‘09 hogs: I have to be honest and say I am walking around with my arms up in the air wondering what the scoop is in the hog futures. I can’t say we have made any leaps and bounds in the cash market or product sales but the futures continue on their way up. Today is the beginning of the Goldman roll and when the roll takes place you can pretty much throw logic out the window because the volume they need to get done changes the way the market trades, in my opinion anyway.
The cash numbers were mixed at noon but the cutout number showed loins around $7.00 lower on the day along with trimmings being $1.00 lower as well. Face value the noon cutout report would suggest a lower cutout number tonight but all other cuts were not established and they weigh on the overall cutout value so it is difficult to tell from the noon report. The Dec ’09 contract made a bottom on June 29th then rallied for 15 trading days into July 17th then started to decline; today marks the 15th trading day of the current rally.
One of the cycle indicators I look at has today begged as a high for the Dec contract and has it moving lower into Sep 25th. Since 1989 the Dec hog contract has rallied 14 years on average of $2.025 with a maximum up move of $3.875 in 1998 and declined 7 years on average of $1.30 with a maximum down move of $3.00 in 2008. As of today’s close the Dec contract has rallied $1.525 so we are not far from the average up move but if we test the max it would project a target of $51.35 which is actually near 50% (actual resistance is $51.125) of the way back to the July 17th high.
As of now I am still of the opinion that this rally is a good hedging opportunity in the Dec contact via a known risk strategy. If you have questions on what type of strategy to use for your operation email us at firstname.lastname@example.org.
Bottom line: I’m looking for the market to make an early high tomorrow then weaken as the day progresses.
Oct ‘09 Hogs – Support/Resistance for 09-09-09
(R3) Resistance 3: $53.50
(R2) Resistance 2: $52.20
(R1) Resistance 1: $51.575
Today’s close: $50.975
(S1) Support 1: $50.275
(S2) Support 2: $49.60
(S3) Support 3: $48.30
(S4) Support 4: $45.50
(S5) Support 5: $39.65
(S6) Support 5: $35.275
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