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Corn – Well filling the $5.28 1/4 gap didn’t take long to get out of the way. I expected it to fill but I have to say I didn’t really expect it to happen today but again nothing is a surprise anymore. Now that the $5.28 1/4 number is out of the way the bulls need to keep the market above $5.29 3/4 otherwise if we get two consecutive closes below $5.29 3/4 then we could see a test of $5.11 3/4. If $5.11 3/4 is taken out then our next target is down at $4.75 which would be a 50% retracement back to our $3.43 1/4 low in June.
I’m of the opinion that corn has done near enough to the downside for now. We could trade lower early tomorrow but I’m expecting support to come into the market early. The Dollar index has been on a rally as of late and I think tomorrow we could see some weakness in that market which should give some positive price undertones to the commodities markets. Fundamentally we haven’t made any changes from last week so everything that is taking place is money management in my opinion. If the market gaps lower (opens lower than $5.25 1/4 in the Dec ‘10 contract then it will generate a buy signal at $5.26 1/2 STOP. If this happens I think it could put the breaks on the recent down turn in the market. If we open higher then the market is poised to make one more push to the downside at least for now but I think we will see buying tomorrow.
Now is an excellent time to discuss a limited risk strategy with your risk manager on how to protect deferred corn prices in some form or fashion!! Unless you have acceptable profits in your crush margin that you can live with, I would use known risk strategies to protect prices for margin call reasons as well as volatility reasons.
Bottom line – The intraday charts suggest an early low and late high for tomorrows trade.
Meal – First off, my apologies. I said yesterday that the gap in Dec ‘10 meal was at $321.80 which was wrong, it is at $316.20. I’m not sure how I messed that up but I did and again I’m sorry. I’m still of the opinion that we will not fill the gap in the Dec ‘10 meal at $316.20 as I think we have done enough to the downside for now. I believe that support at $325.70 should hold based on the way the Dollar index looks as well as the intra day charts in meal. The USDA data is still friendly to the soybean market but hot money is exiting some positions and taking the market lower.
We are in a period now were need to focus on profit margin more than ever. Legging into feed purchases or hog sales could be a catastrophic under the current volatility structure of the market. Make sure you have a plan to lock in all three aspects of your crush if you are looking at doing anything. If you do leg into something the safest thing to do is use a known risk strategy so you are flexible with the market.
Bottom line – The intraday charts suggest meal makes an early low tomorrow.
Hogs – After testing yesterday’s high of $69.85 the Dec ‘10 contract fell apart. Again as I said yesterday the cash market remains weak with the packer sitting in the drivers seat. The packers believe there is ample supply of hogs to get them through the next couple of weeks therefore there is no reason for them to push the market higher. The cash was considerably lower at noon today if you believe anything on the noon report which seems to have as much value to the hog industry as a Peanuts cartoon in the Sunday paper. That said there was very little volume in the noon report which would suggest the weighted average shouldn’t be as low as the noon report suggests.
It is unfortunate that a lot of producers allow the packers a license to steal in which control is virtually handed over to the packers with all of the packer contracts out there. If the independent hog producer wants to stay in business and actually have and industry in which they can participate, we need to have more negotiated hogs out there. There are a handful of hog producers out there trying to establish an honest cash market and what is the closest thing to knowing actual demand. It is bothersome to see negotiated pigs be less that 5% of the daily kill and the rest of the market is priced off of what the packers use for their pricing contracts.
I’m not saying don’t any packer contracts I’m just saying that the industry needs more negotiated pigs to help establish a fair price on a consistent basis. If you have packer contracts and you know someone who negotiates pigs call them and visit about the pros and the cons. If the current structure continues and commodity prices become more volatile we will more than likely see a lot of independent producers go by the way side and in turn kill the industry and the independent producer.
If negotiating cash hogs is a large part of your business operation I would be interested to hear from you as it never hurts to have a counter part to bounce ideas off of. If you disagree with the thought of negotiating pigs I would also like to know why. If you have time drop me an email with your thoughts at email@example.com.
Again, I’m not expecting much in the way of higher prices as we move into Thanksgiving week. Steady at best to lower is my thought on the coming week and a half.
Bottom line – The intraday charts suggest hogs make an early low tomorrow.
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