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Corn – Not much has changed for me since my Monday posting. I still think the Dec’10 corn contract made its high on Thursday of last week. I also think that we can move down toward the $3.91 area before finding good support. The only thing in my mind that will make the first part of this paragraph untrue is if the USDA throws another bullish curve ball in tomorrow morning’s report. I don’t expect it, as a matter of fact I think the surprise could be a bearish one if any but you NEVER know what the USDA will decide to report.
The charts suggest the report will be negative over the coming weeks but even if the report is bullish it looks like it should be one of those sell the open type trade days. DO NOT take that as a recommendation because it may be the absolute wrong thing to do if the report is very bullish, which I don’t expect. My point is that if it is mildly bullish I think we could “trade” the report within the first 1/2 hour of the trade session and the pro’s would come in an sell it. JUST MY OPINION.
Hog margins still work (obviously this varies by individual and pricing structures) with corn at these levels so if you are selling hogs MAKE SURE YOU LOCK IN YOUR CORN! It doesn’t matter where the price goes if you lock in all of the variables that make up your profit margin.
As always make business decisions and develop a risk management plan that will protect the equity that you have in your livestock production. Find someone that you trust and work with them to develop a plan!
Bottom line – The intraday charts suggest corn makes an early high tomorrow. Now is a good time to work with your risk manager to help develop a coverage strategy that fits your operation if you are making hog sales.
Meal – As in corn, my opinion for Sep ‘10 meal hasn’t changed much either. I’m still looking for a target price to be touched around the $283.00 area in the Sep ‘10 contract. The meal chart is seemingly setting up for a negative soybean report just like corn so I’m of the opinion of giving meal time to work lower before locking in prices. If you have sold hogs based on a profitable margin then don’t wait for lower prices, just lock the meal in and walk away. If you have flexibility the $283.00 area is a place I would pay attention to. Thus far the $300.00 sell signal I spoke of is still in play in the Sep ‘10 contract.
If you own call options in place of cash purchases now would be a great time to set downside targets to lock in your meal assuming we get a move lower in the coming weeks. $283.00 Sep ‘10 meal is a target that I think the market could shoot for as it looks for fresh information and direction. Now is a good time to visit with your risk manager to develop a meal coverage plan that is right for you.
Bottom line – The intraday charts suggest meal makes an early high tomorrow.
Hogs – I said in my post on Monday that we had a buy signal at $73.75 with a risk management sell stop at $72.75. This trade is still active and I believe it will be a good one. The cash market has responded for next week and even the high end of today’s lean range was $83.00. That’s not bad! The market rallied some today and I expect it to continue its rally as we tested our low of $73.25 this morning but failed to penetrate it. Monday and today’s low is $73.25 so we’ve tested the low but couldn’t get through so now I think we take it higher.
I mentioned $75.95 as an area of resistance that I thought we could reach and I’m still of that opinion. I fell slightly more optimistic today than I did yesterday because the cash market is now lining up with what I see technically. I still think rallies are meant to be sold from now through the June ‘11 contract. I’m not feeling as optimistic for the Feb ‘11 through June ‘11 contracts at this time as I think they will be lag the Oct and the Dec ‘10 contracts. There is another buy signal for tomorrow at $73.25 stop IF the market makes a new low and then moves back above $73.25. Again this is a conditional buy signal that I’m not sure will meet the criteria to be triggered. I think the $73.75 buy signal we had the other day will not allow the market to make a new low below $73.25.
On this next bounce in hogs SHOULD be a prime opportunity to lock in profits based on my read of the corn, meal and hog markets. It looks and feels like the hog margins have a pretty good chance of increasing over the coming weeks as a result of higher hog futures and lower corn and meal futures prices. Again this is my opinion and you should always visit with someone you trust about your situation to make sure you make decisions that are appropriate for your operation. IT’S OKAY TO BE BULLISH, JUST DON’T BE STUPID!
I also mentioned last Thursday that I thought the U.S. Dollar index had bottomed and thus far that has been the case. It was up hard today as the Dow Jones fell quite handily. This is another reason why I want to sell rallies in the hog market because depending on how high the Dollar goes will have definite influence on how high hog futures go and how long they stay there. I’m expecting a test of 84.40 to 85.40 over the next few weeks in the Dollar index, we’re at 82.47 as I write this. IT’S OKAY TO BE BULLISH, JUST DON’T BE STUPID!
I think we have enough enthusiasm to fill the gap that we left at $75.95 but I think that could be it for now. If you don’t have margins locked in for a relatively substantial amount of time I would suggest talking with your risk manager about a plan to make some “catch up” sales on the next bounce. I’m of the opinion that the U.S. Dollar index has bottomed for now and should try to make its way higher through the end of this month. I expected a much larger sell off in the dollar once it broke the 81.45 support level but it failed to do so. A rally in the dollar will not help commodity prices at these comparatively inflated prices.
Keep making business decisions and protect profits where you can.
Bottom line – The intraday charts suggest hogs make an early low tomorrow.
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