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Watching the next big resistance level in corn

Corn: We started the morning given the crop report and this is what the USDA gave us: Corn yield rose to 164.2 which was well above trade expectations of 162.7. Our estimate was 164.1 so we want to say thank you to those who participated in our August yield survey providing us with such an accurate number.

There was talk about the yield estimate of 153.8 Friday morning and when it comes to that number, let's just remember the number given and compare it to final yield so we can determine accuracy. What most people did not see coming was harvested acres going down 700,000. This offset the increase in yield leaving carryout nearly unchanged at 1.672. So here we are with a report that raised yield last month while increasing feed use and now a decrease in acres.

Whatever it takes to keep carryout from moving much it seems. Shortly after the report was released calls looked to be just slightly lower. On the opening bell corn started following the beans higher and even traded high enough to take out the double top at 370. Following the bean market was not enough to break the all important resistance of 376 and when the beans began to set back so did the corn. It was obviously some profit taking after another week of moving higher.

Another important factor to look at is that while we saw profit taking and traded lower, we did not take out yesterday’s low of 358 3/4. Combines are nowhere close to moving in most areas and even if they were they would likely be doing beans rather than corn so the true harvest pressure has not stepped in yet. Now the question is if corn will take out 376 or if it will break lower from harvest pressure. Worst case scenario is if we take out sellers by breaking 376 and then break lower.

Direction: Now 370 resistance is out but the more important resistance of 376 still stands. That will be the most important level to watch for now. Trading higher than that could stop out many who are holding on to sales. We will watch to see if buying aims to take out those stops. Hedging December 10 corn was affective this week but now the added premium is being taken out of next year’s Dec corn making that hedge more difficult. The spread between this Dec and next year is now only about 43…Ryan Ettner

Trade Idea(s):

  • (10/08) Sell 375 or 353 stop. Risk 387. Objective 305.

Option Strategy(s):

  • (10/07) Stand aside.

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Corn Technical Commentary: Even though corn was able to punch through 370 during the session today, the close was well below this level. It was also below the 100 day MA, which may prove bearish for Monday's trade.

Vital Technical Indicator: the next projected major turn day is October 14.

Lean hogs: Let's put this into a perspective we can understand. From last Friday's close to today’s close, December hog futures rallied a massive $4.97. At the end of last week they were implying cash hog prices would fall by December 14 (when December futures expire). Now they are implying cash hogs will go up in that time. On the cash hog front, we are computing about a 50-cent gain this week. Wholesale pork actually fell 85 cents! Bottom line here is futures made a tremendous move that was not backed up by cash markets. The main reason for this move, on a fundamental basis, is that hog slaughter fell to 3% lower than last year. In previous weeks it was about even. This drop (vs. last year) shouldn’t be too much of a surprise though. We noted that the September Hogs and Pigs report indicated a transition would happen in October in slaughter rates. They will still remain large but simply just a little under record levels.

H1N1 no longer affecting prices: One good thing we can note is commodity newswires are not including H1N1 in their daily comments. Now that flu season is into full swing we will see the CDC numbers quoted more often. For instance, this morning the child death toll was reported at 76. There was a 14-year-old girl who died due to complications of it just 30 miles from our office. The good news is so far, the hog pits are correctly not getting hyped.

The Final Take: This week's run was hype based. There’s nothing wrong with that once in awhile. We just have to be aware it is happening and not stand in front of it until the right time. Reiterating our position…we are bearish December and will look for a sell point in the next week or two. We still are clarifying; we are bullish mid 2010 contracts…Rich Nelson

Trade Idea(s):

  • (10/06) Stand aside.

Option Strategy(s):

  • (08/18) Sold Oct 42 put 2.50, risk to 2.85, objective 0. Closed .02.

***Disclaimer*** the commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Lean hog technical commentary: Hogs finished the week on a neutral note with a small inside bar on the chart. Volume was heavy though, so we may see this week's strength continue again next week. However, the 100 day MA is holding as good resistance at 53.67.

Vital technical indicator: Next projected major turn day for lean hogs is October 24.

Corn: We started the morning given the crop report and this is what the USDA gave us: Corn yield rose to 164.2 which was well above trade expectations of 162.7. Our estimate was 164.1 so we want to say thank you to those who participated in our August yield survey providing us with such an accurate number.

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