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Corn low still undecided

Closing Corn Commentary

Broker Perspective: Today saw a quarterly Grain Stocks report that was quite bullish for corn. Trade thought we had 1.113 billion bushels of corn on hand and today they reported that pile was only 988 million. Instant market reaction was to bounce corn 20 to 25 cents which appeared to be fitting given that number. Bulls that have been waiting for any news to buy from took care of the rest. Even though there were no other changes to fundamentals, the bulls went as far as claiming the fall low is in. That type of thought caused buyers to almost stumble over each other to quickly run the corn market up limit and then spill over into buying wheat and beans as well. Bulls really do feel as though they have put a bottom in this market which could certainly lead into additional buying Sunday night. Today’s limit higher move has now made the quarterly stocks report result in 8 limit moves out of the last 10 reports. It might be a little early to call a fall bottom today as there are a few other bullish objectives that need to be reached to make that claim. First, the downtrend line crosses at 765 1/2 today which has not been broken yet. Secondly, we will have to see if this higher trade causes importers to come in buying corn over the weekend. Importers have three options right now: 1) Buy US corn thinking that the fall low is in 2) Buy South American corn for current needs thinking US corn will continue to drop or 3) Do what they have been doing which is nothing at all. If bulls can see the technical trend line taken out and also get fundamentals on their side with new exports, they certainly can make the claim that the lows are in. Most bears are likely still ahead if they did not liquidate early this morning. It is possible that the fall low is in but it is still just a little too early for us to call that today.

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Ending Stock Confusion: USDA emphatically told us on the September 12 supply/demand report that a record harvest of corn by the end of August would mean a record amount of corn hitting the market in August and offsetting old crop Jun – Aug demand. Bulls argue 1) old crop feed use was simply that much better or that 2) the supply of new crop harvest in August was much smaller than the 1.2 billion bushels they were expecting. Bears can argue a few things. 1) USDA’s June – August old crop feed use numbers never make sense anyway, 2) maybe producers simply used more old and less new but that the USDA will lower new crop feed use on the October report to compensate, or 3) maybe the far South had lower production but harvest reports out of the Midwest with good results more than offset that. Either way we say higher trade by 20 to 30 cents early next week. We are not ready to change our 660 downside target for the end of the year yet. There are too many questions and too few answers yet.

Working trades:

(9/28) Sold December 850 call at 10, risk 20, objective 0, closed 9 1/2

(7/16) Sold December corn 1000 call 10, risk 30, objective 0.

Lean Hogs Commentary 

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We consider this afternoon’s Hogs and Pigs report to be mildly bullish. The total hog herd for Marketing over the next six months was estimated to be 0.4% higher than last year. That is lower than 0.7% estimates. Some are concerned that the weight breakdown showed hogs weighing over 180 lbs was 4.5% larger than last year. We call that number irrelevant. Those extra hogs were slaughtered in the first three weeks of the month (if they were actually that large). What is lined up for us in October and beyond is a mild 1% higher than last year (at best). The Breeding herd fell from 1.0% higher than last year on June 1 to now 0.3% lower than last year on September 1. We have clearly stated before the breeding herd has seen smaller gilt numbers entering but not really much change in sow slaughter. Tonight’s chart shows this breeding herd’s future plans. The last two bars are for the current Sep/Nov quarter and the upcoming Dec/Feb period. It looks like hog numbers turn down by spring of next year. For our short term view it appears this cash hog rally is now sputtering out. We cannot call a top yet. It is getting harder to make daily gains though. This week we exited one of our bullish positions and look to move to a neutral stance next week.

Working Trade:

(9/11) Bought October futures 72.52/sold December 75 call 1.52, risk to +2.00 from entry, objective 4.50 from entry. Closed 77.17 and 2.20 for net +3.97 from entry.

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