PFGBEST Livestock Market Comment

CHICAGO - Nov 4/09 - SNS -- Following is the livestock futures comment from PFGBEST Research.

Livestock Update(2)

HOGS: (week ending 10/24/09)

Weekly Statistics

1. Pork Product (wholesale)

   1. Loins 86

      1. 5.5% higher than last week (92)
      2. 24% lower than last year (113)

1. Cash Hogs

   1. 30

      1. Unchanged from last week (30)
      2. 19% below last year (37)

   2. Zumbrota (St. Paul) 32

1. 3.2% below last week (31)

                                                                                                                      ii.           24% below last year (42)

III.                         Hog Weight

IV.                         Pork Production (millions of pounds)

a.             469.3

                                                                                                                          i.           1.4% higher than last week (462.6)

                                                                                                                      ii.           1.8% higher than last year (461.2)

b.           18477 (year to date)

                                                                                                                          i.           1.8% lower than last year (18821)

V.                               Lean Hog Index

a.             5341

                                                                                                                          i.           3.5% higher than last week (5160)

                                                                                                                      ii.           12.5% lower than last year (6104)

VI.                         Pork Price $2.17 (13 cut wholesale average)

a.             1% higher than last week ($2.15)

b.           8% lower than last year ($2.36)

December hog futures closed 95 points lower for the week.   February futures closed down 48 points.   Twelve lower, for the week, in April futures.

Quiet weeks in hog futures as traders try and determine the general direction of the hog market.

Negatives for the week:

1.                                                           September pork production a new record for the month.   In addition, August pork production raised 12 million pounds

2.                                                           A hog at the Minnesota Fair tested positive for H1N1 virus.   Floor traders sold this info on Monday and Tuesday ' market came back late week.

3.                                                           Loins-butts-ribs almost always trend lower the last half of October as retailers reduce fresh meat purchases into Thanksgiving.

4.                                                           A lower product and cash hog market gives a decline in the lean-hog index into December.   The index has declined in eight of the last nine years by an average of ten percent.

Positives for the week:

1.                                   Barrow and gilt cash prices in the National, Iowa-Minnesota, Western and Eastern Corn Belt $1.81 higher.

2.                                   Pork cold storage stocks for September increased 1.7 million pounds.   Last year stocks increased 23.5 million pounds.   The five year average is 28 million pounds.

3.                                   Canadian feeder pig receipts are down 20% from last year.

4.                                   A rare first half October decline in hog kill, versus 2008, giving a rally in butts, hams and frozen bellie prices.

Floor traders went home the week with a rather large short position in December hog futures.   Everyone is looking for the seasonal price decline.   With record September pork production, but only storing 1.7 million pounds, implies our demand is picking up.   This demand pick-up could be domestic or foreign ' or both.   Funds continue to cover shorts with a net decline of 3811 contracts (futures only).   They are still short a net 10766 contracts.   Adding options they are short a very small net of 814 contracts.

At this time, it appears we are at equilibrium between hog kill and pork product.   If bearish news is lacking, next week, we could see a short-covering-rally by floor traders.   We now have a conundrum between record pork production against light monthly pork storage.   It appears pork demand is getting better.

TECHNICAL:

We are short December hogs between 5200-5400.   A buy-stop of 5540 on a close-only basis should be kept.   Since putting on our short position, fundamentals and psychology have turned neutral.

RECOMMENDATION:

No new recommendations.

CATTLE: (week ending 10/24/09)

Weekly Statistics:

I.                                     Cash Cattle

a.             Texas/Oklahoma $86.00-$86.50 (last week $84.00)

b.           Nebraska $84.50 - $85.00

                                                                                                                          i.           Last week $82.50 - $83.00

                                                                                                                      ii.           Hot weight $132.00 (last week $127.00-$128.00)

II.                               Boxed Beef (value reflects US dollars per 100 pounds)

a.             Choice $139.02

                                                                                                                          i.           Last week $135.87

                                                                                                                      ii.           Last year $141.52

III.                         Hide and Offal (average value for week)

a.             $8.47

                                                                                                                          i.           835 last week

IV.                         Retail Beef Price

a.             15 cut average $3.63

                                                                                                                          i.           $3.73 last week (-2.7%)

                                                                                                                      ii.           $3.97 last year (-8.5%)

V.                               Beef Production (millions of pounds)

a.             515.5

                                                                                                                          i.           502.0 last week

                                                                                                                      ii.           505.7 last year

VI.                         Cattle Slaughter (head)

a.             646,000

                                                                                                                          i.           629,000 last week

                                                                                                                      ii.           645,000 last year

VII.                   Export Sales (metric tons)

a.             7100

                                                                                                                          i.           32% below four-week average

                                                                                                                      ii.           15% below last week (8500)

b.           20994.0 (year to date)

                                                                                                                          i.           21725.8 (year to date ' last year)

October cattle futures were 210 points higher for the week; December futures were up 170 points; February contract up 135 points.

                      We talked the last several weeks of the 4%-6% decline in feedlot marketings during October and November.   This is now coming to pass.   On the demand side, we have boxed beef prices increasing last week by $3.15 on 'choice' and $1.78 on 'select.'   Last year for this week we lost $2.94 on 'choice' and $2.45 on 'select.'

                      This price increase came in spite of the highest gas prices of the year and October meat movement described as 'moderate' at best.   Lower feedlot marketings gave the cash cattle price increase and retailers living hand-to-mouth on beef purchases needed to cover expected pre-holiday needs.   Retailers will seasonally continue to raise offering prices of ribs and tenderloins into the holidays.   We should expect cash cattle prices between $87.00-$89.00.

                      Late summer cattle placements into feedlots will give us a large increase in marketings during December and January.   December marketings could be up as much as 6% over November.   January feedlot numbers should increase another 3% from December.   Assuming beef demand stays 'average' for this time period, the supply increase should give a live cattle price around $82.00

                      A weaker or stronger dollar during this period should have minimal impact as we only export 7% of beef production.

RECOMMENDATION:

1.                                   Buy December futures between 8500-8600 or buy December futures if we can't close below 8620 over a three day period.   A sell-stop of 8435 stop-close only should be used.

Look to sell February cattle futures between 8800-9000.   A buy-stop for this trade would be 9050 stop-close o

PFGBEST Research Team

Phone: 800-361-6855 or 319-553-2181

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