CORN – Sep ’09 Electronic
Open – $3.42, High – $3.65, Low – $3.38, Close – $3.58 Up $.18 1/2
Thoughts – Long Term (into September ’09) – Sideways/Higher
Thursday I said: “Broke out of our short-term downtrend based off the $3.42 1/4 high we had on July 15th. Volume wasn’t exceptional today but non-the-less the market still moved higher. It seemed all of the stars were lined today as the Dow Jones was trading nearly 200 points higher, crude oil was up over $3.00 and the dollar was lower plus we had a good export report this morning. Funds purchased around 6,000 contracts today which added fuel to the already burning fire and allowed the corn market to firm towards the close of the trade session.
The breakout of the mostly sideways trade range we’ve had since July 17th now gives us a sense of support around $3.28 which was the top end of the range. We had a relatively strong close today which suggests a neutral to lower opening tonight but would also be a good opening for follow through to the upside tomorrow. We still own price coverage in the Dec ’09 contract at $3.50 via call options and have upside to $3.90 for the time being.”
Sep ’09 corn: Wow, I didn’t expect to see the market up as much as it was overnight nor was I looking for near limit up trade during the session. Volume was huge today compared to what we have been experiencing so there was some force behind today’s move. The market was the benefactor of “outside money” coming into the market place buying what they could. The Crude oil futures were trading over $2.00 higher for most of the day and the U.S. Dollar Index took another dump today and breached the low set in December of 2008. I don’t have much good to say about the U.S. Dollar Index because if are trading below 77.90 as of the market close on Aug 14th then I am looking for a challenge of the ultimate low in March 2008 at 70.69.
Back to corn, we had an extended move higher and in doing so took out last week’s $3.61 high. If the market closes above $3.61 this Friday then I would look for more upside next week but for it will provide resistance and if we trade above it on a daily basis for a period of time this week it should work as support to the market. This week will tell us much more about the market based on the longer-term charts. If the Dollar continues to slide we could continue to see the “outside money” come into this market despite what our fundamentals say. It is amazing how one day we can be talking about how much corn is out there and the next day nobody seems to care, at least for now.
I said on July 22nd when the USDA announced their “update” on planted acres that I strongly suggested owning call options through the Aug 12th report until we know more about these “updates”. I am still of the opinion that it is wise to have a known risk position in place to protect against higher prices prior to this report on the 12th because the USDA has been full of surprises the last 12 months. FCStone will be releasing their August crop survey this afternoon which will be our first look at the corn yield number and it is expected to compare to the 2004 crop year. FCStone will be the first private group to release what they think the USDA’s FINAL yield should show. The FCStone corn yield projection this afternoon was 160 bu/ac for a national average. If we didn’t have outside money in the market today I don’t think we would have traded like we did today knowing this report was just around the corner.
Bottom line: I am looking for the market to experience an early high tomorrow.
Sept ’09 Corn – Support/Resistance for 08-04-09
(R3) Resistance 3: $3.82
(R2) Resistance 2: $3.65
(R1) Resistance 1: $3.61
Today’s close: $3.58
(S1) Support 1: $3.54 1/2
(S2) Support 2: $3.53 1/4
(S3) Support 3: $3.41 1/2
MEAL – Sep ’09 Electronic
Open – $335.00, High – $349.20, Low – $332.00, Close – $338.60 Up $6.10
Thoughts – Long Term (into September ’09) – Sideways/Higher
Thursday I said: “Meal had a tremendous day technically and closed right at old resistance of $325.30 with the next objective of $328.00 which would be 50% of the way back to the $371.00 high we had in early June. In the last couple of days we were able to exit our short $360.00 Sep ’09 call options for $1.50 to lock in the equity we gained through selling them against our long $320 Sep ’09 calls. This gives us unlimited upside in this position and we will now look to exit our short $290 Sep ’09 put to eliminate our downside risk as well.
The meal chart looks very good at this point because in the last couple of weeks we’ve held the $291.70 support level which would suggest a test of $328 which could likely come either tonight or tomorrow. The 8-14 day weather forecast has some heat moving into most of the major growing areas but there isn’t a lack of rain in this forecast so the trade will monitor this closely. If the market remains in a friendly mode after today it could become a story that gets talked about to fuel direction.
Some type of upside protection is almost a must considering the current situation with the hog industry while also trying to leave downside open because meal is still high priced from a historic perspective. If you have questions about how to do this email me at email@example.com with your question and I will do my best to respond as soon as I can.”
Sep ’09 meal: We gapped higher than the downward trend-line when we opened the overnight session last night and have been trading above the 62% retracement level of $338.30 and are now treating it as support. If this level holds tomorrow as well then we can look for a test of $371.00 in the near future with a pit stop at $355.70 first. Again most of today’s rally is attributed to the outside money coming into the market as a result of beneficial outside market action.
I am still of the opinion to have a known risk strategy in place to protect yourself from higher prices and hold this position into the Aug 12th crop report. This market looks good and poised to test its 2009 high of $371.00, however, we gapped higher last night and also for the week which typically happens at the end of moves in the market. We also had a weak close today giving up most of the day’s gains which signals a POTENTIAL exhaustion of this move. I am not calling a top but if the market trades below $332.00 tomorrow we could see some sell stops trigger.
Bottom line: I’m looking for the market to experience an early high and a late low tomorrow.
Sep ’09 Meal – Support/Resistance for 08-04-09
(R3) Resistance 3: $349.20
(R2) Resistance 2: $344.50
(R1) Resistance 1: $343.00
Today’s close: $338.60
(S1) Support 1: $336.70
(S2) Support 2: $332.00
(S3) Support 3: $325.40
HOGS – Oct ’09 GLOBEX
Open – $53.80, High – $53.825, Low – $51.80, Close – $52.05 Down $1.85
Thoughts – Long Term (into December) – Negative
Thursday I said: “Aug ’09 hogs didn’t take any breaks from the downside today as it fell another $2.125 today with not much hope for any upside at this point considering the cash was lower again this afternoon as well as the cutout being down $.45. The market has moved slightly higher since the cutout number was released this afternoon on the notion that it wasn’t as bad as it could have been. The cash market needs to turn and turn fast for the August contract to have any hope of upside and thus far it doesn’t look good.
We are short in the Aug ’09 contract and are looking for an opportunity to roll these positions out to the October ’09 contract when the time is right. The reason we are staying short in the near-term contracts are because of the weakness in the cash market. If the market moves low enough and feed grains continue to climb we could eventually see the sow liquidation that the industry so desperately needs and that would further pressure the nearby contracts and give support to the deferred contracts.
If you look at where the hog contracts settled on July 17th vs. where they settled today you will notice the front months have declined much further than the deferred. From July 17th to the market close this afternoon the Aug contract has dropped (cwt) $10.05, Oct $7.95, Dec $5.975, Feb $5.845, Apr $5.375, Jun $3.97 and July $3.95. You can see where the hedge opportunity has been in the last couple of weeks.
Going back to 1989 I looked at the seasonal price tendencies for the first half of August using the Aug and Oct contract and here are my findings:
|Ave Up:||$ 2.5750|
|Ave Down:||$ (2.3921)|
|Max up||$ 7.2750|
|Max down||$ (3.8700)|
|Aug 1-15||Aug 15-Sep 1||Aug 1-Sep 1|
|Ave Up:||$ 1.2505||$ 1.8456||$ 2.5319|
|Ave Down:||$ (2.6470)||$ (2.7533)||$ (4.3746)|
|Max up||$ 2.5000||$ 3.4000||$ 5.2750|
|Max down||$ (6.0000)||$ (7.9250)||$ (8.9000)|
The results say be careful if you stay short the August contract beyond August 1st but I just don’t know that history applies as much this year. The risk to the downside clearly shows that the October contract is the best contract to be in for the first half of August in the event the market moves lower.”
Oct ’09 hogs: As you may have noticed I have switched from talking about the Aug ’09 contract to the October ’09 contract because the August contract is going to be responding solely to the cash market soon and provide little in the way of hedge protection. The recent bounce in the feed grains and the additional declines and new contract lows in hogs should further weigh on producer finances and might be what is needed for the industry to finally get a flush of liquidation which is about the only thing that is going to save this market unless we get some major export business moving product again.
The cash market seems to be at a near standstill which doesn’t bode well for the front month futures months. If producers didn’t get some hedge protection in place when the market rallied into the middle of July and the feed grains fall into early last week then there must be some sick stomachs out there again which could end up being the last straw for some guys. Nobody ever wants to see anyone go out of business other than on their own terms but the way the market is moving now some people may not have a choice in the matter which is sad.
With the feed grains moving higher and the hog market moving lower I am still of the opinion to keep hedges close to the front of the curve because of the potential liquidation that may occur. We rolled all of our hedges from August futures to October futures last Friday and will stay in this month for now until we have reason to do otherwise. I wish I could say we are in a bottoming process in hogs but that would be a lie. If the October futures make new lows and close below the $51.75 area in the October ’09 contract then we could see another leg lower in the Oct ’09 futures.
The ONE bright spot I see for Oct ’09 futures is the potential for a CONDITIONAL buy signal if the Oct ’09 futures make new lows below $51.75. If indeed we do make new lows then a buy signal would be generated at $58.00 on a STOP only with a protective risk management stop $.50 below the most recent low at the time the buy stop is filled. I don’t know how much confidence I have in this potential signal because of the negativity in the cash market and the lack of cutout enthusiasm. I will monitor it but I will not partake in this trade on an aggressive basis but if it is confirmed then MAYBE we will adjust hedge positions with out of the money call option or something of that sort.
Cutout was down $1.01 this afternoon but I believe some of today’s trade action was factoring in today’s lower cutout number. I will be watching the potential buy signal tomorrow but I am very skeptical at this point.
Bottom line: I’m looking for the market to make an early low tomorrow and firm as the day progresses.
Oct ’09 Hogs – Support/Resistance for 08-04-09
(R3) Resistance 3: $53.80
(R2) Resistance 2: $53.42
(R1) Resistance 1: $52.60
Today’s close: $52.05
(S1) Support 1: $51.80
(S2) Support 2: $50.95
(S3) Support 3: $49.70
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