PFGBEST Livestock Market Comment

CHICAGO - Nov 30/09 - SNS -- Following is the livestock futures comment from PFGBEST Research.

Weekly Livestock Week Ending 11/21/09

1. Pork Product (wholesale)

   1. Loins 84

      1. Unchanged from last week (84)
      2. 11% lower than last year (94)

 

1. Butts 78

8% higher than last week (72)

                                                                                                                      ii.           4% higher than last year (76)

 

c.             Hams 69

                                                                                                                          i.           3% higher than last week (64)

                                                                                                                      ii.           36% higher than last year (53)

 

d.           Bellies 74

                                                                                                                          i.           3% higher than last week (72)

                                                                                                                      ii.           9% higher than last year (68)

II.                               Cash Hogs

a.             Peoria 34

                                                                                                                          i.           Unchanged from last week (34)

                                                                                                                      ii.           2.5% higher than last year (32.5)

b.           Zumbrota (St. Paul) 34

                                                                                                                          i.           6% lower than last week (36)

                                                                                                                      ii.           8% lower than last year (37)

III.                         Pork Production (millions of pounds - weekly)

a.             475.3

                                                                                                                          i.           2% higher than last week (464.6)

                                                                                                                      ii.           1% lower than last year (480.8)

b.           20354.0 (year to date)

                                                                                                                          i.           1.8% lower than last year (20717.8)

IV.                         Lean Hog Index

a.             5392

                                                                                                                          i.           3% lower than last week (5547)

                                                                                                                      ii.           3% higher than last year (5225)

December hog futures closed the week at 5760 ' a gain of 260 points.   February futures gained 200 points.   April hogs gained 200 points.

Last week saw speculative funds and large traders increase their net long by 1002 futures contracts.   Futures-only position is now a net long of 7753 futures contracts.   Last week these same traders had a net long of 6751 contracts.   Adding options they are now a net long of 19206 contracts.   Last week, they were a net 18496 contracts.   This was a quiet week for expanding long contracts.

Local traders came into the week short December and February hog futures.   The pre-Thanksgiving break in ham and bellie prices did not happen.   This weeks rally can be attributed to local short-coverings.

This coming week usually sees a hog futures rally.   Pork is usually featured the second week of December and retail buying for this time period happens this coming week.   In addition, we only kill hogs four days this holiday shortened week.   This lighter kill week helps to intensify the rally in wholesale pork product.  

Hog futures are cash settled against the lean hog index.   As of today (Monday, November 23^rd) this index is 5377.   December hog futures settled at 5830, a premium of 453 points over this index.   Most years we build a futures premium between 450 and 700 points (futures over index) by the end of this week.   December futures will stop trading the end of the second week of December.   At that time, hog futures usually close within 25 points of the lean-hog-index.   With such a large spread between futures and index, December hogs should break 200 to 300 points the first 4-7 trading days of December.  

                      RECOMMENDATION:  

1.                                                                                   Short term ' Sell December hog futures between 5850 and 6050.   This will be no more than a ten day trade.   Use a buy-stop of 6382.

2.                                                                                   Long term ' We want to buy February hog futures on a pull-back between 5950 and 6150.   We might have to raise this buy area on the next report.   We still look for a lean-hog-index between 6350-6550 by the middle of February.

December cattle futures were down 168 points for the week.   February futures were down 112 points. The April contract was down 130 points for the week.

                      The CFTC 'Commitments of Traders' report shows speculative funds on a buying binge.   In futures-only positions they, again, have added a net long of 4439 contracts.   They are now a net long 27,365 contracts.   Adding options they had a net long, for the week, of 5352 contracts.   Total net long is now 46,735 contracts.   Index funds added a net long of 2775.   They now have a total net long position of 121,133 contracts.   Non-reportable (small traders) are a net short of 31,870 contracts.   It is seldom you see small specs beat funds, but 'beat them they have' as we are on a fourteen day 400 point sell-off.   Total cattle open-interest is rather high at 266,000 contracts, and continues to build as funds buy and small specs sell.

                      Boxed-beef 'choice' pricing was up 1% for the week as grocers are booking beef for the first week of December.   Meat retailers feature beef the first ten days of December as they feel consumers are tired of ham and poultry over the Thanksgiving holidays.   Grocers switch to pork during the second week of December.   Wholesale boxed-beef currently is running 11% under last year, but grocers have pushed retail beef to a 4% premium over last year.

                      We continue to be negative February futures.   400,000 more cattle were placed into feedlots during July-October time frame than last year.   As these cattle come to market weight, we should see January-February cash cattle trade between 8000-8200.   February futures are still too high on this price projection.

                      The only friendly fundamental for cattle futures is that dressed weights are falling.   This would indicate we are a bit more current than bears would like to see.

                      One last negative for December red meat demand (mostly beef), Christmas holiday parties are projected at 21 year lows.

TECHNICAL:

                      We are on a 15 day sell-off in February cattle futures.   A close under 8450 projects a low of 8200-8250.

RECOMMENDATION:

1.                                   We were stopped-out of a long December cattle with a loss.   I feel locals started this selling 1-2 weeks sooner than needed.

2.                                   We missed selling February futures by 25 points.   We need a short-covering rally to sell.   A near term rally to 8630-8700 should be sold.

(Editors note:   Little known and worthless fact.   Ukraine's cattle population down 3.6% on year).

CATTLE:   (WEEK ENDING 11/21/09)

WEEKLY STATISTICS:

1.             CASH CATTLE

a.             TEXAS/OKLAHOMA $84.00 (U.S. dollars per 100 lbs.)

                                                                                                                            i.           LAST WEEK:   $85.00

                                                                                                                        ii.           LAST YEAR:   $88.50

b.           NEBRASKA $82.00-$84.00

                                                                                                                            i.           LAST WEEK:   $83.00

                                                                                                                        ii.           LAST YEAR:   $88.00

2.             BOXED BEEF (value reflects U.S. dollars per 100 lbs.)

a.             Choice $139.18

                                                                                                                            i.           LAST WEEK:   $139.42

                                                                                                                        ii.           LAST YEAR:   $156.10

b.           Select:   $131.97

                                                                                                                            i.           LAST WEEK:   $132.19

                                                                                                                        ii.           LAST YEAR:   $145.23

3.             HIDE AND OFFAL     9.32 (five-day average)

a.             LAST WEEK:   9.05

b.           LAST YEAR:   8.45

4.             RETAIL BEEF PRICE $3.72 (15-cut average)

a.             LAST WEEK:   $3.94

b.           LAST YEAR:   $3.86

5.             BEEF PRODUCTION   492.8 (millions of lbs.)

a.             LAST WEEK:   492.9

b.           LAST YEAR:   495.4

c.             22972 U.S. 23691 LAST YEAR (-3%)

December cattle futures were up 63 points for the week.   February futures up 27 points.   The April contract was up 35 at 8805.   A very quiet week.

                      The C.F.T.C. Commitments of Traders Report showed speculative funds and large traders adding to their net short position by 4444 contracts.   They are still long 22921 contracts.   Adding options finds this trader grow? Net long 39983 contracts, although they did decrease their net long position by 6752 contracts.   Small traders (non-reportable positions) did little during the week, and they are a net short 31756 contracts (futures/options).

                      The beef market needs to see an increase in demand.   Unless export demand picks up and/or domestic food service demand turns higher, we are stuck.   Meat consumers continue to show high priced beef.   Retailers feature beef the first week of December.   They turn to pork the second week, and go with traditional ham and poultry for the final 2 weeks of December.   Retailers will feature beef the first week of January but consumer beef buying after Christmas will be curtailed as grocery shoppers are cash-strapped from Christmas purchases.

                      Cattle seasonals are not in the bull's favor.   1^st quarter demand for beef is about equal to 4^th quarter demand.   Cash cattle has a strong tendency to decline into the first quarter.   This decline averages 6%-8% with 4^th quarter cash cattle highs around $88.00, we can expect a seasonal decline to $82.00.   We continue to feel 1^st quarter cash cattle lows between $80.00-$82.00.

                      At the present time, the only positive for cattle pricing is the extremely current markets in cattle feed-lots.     Dressed weight of cattle has declined by 25 lbs during the last 4 weeks.   The five-year average decline is 4 pounds.   This weight loss appears to be basis-related.   Cattle placed into fee-lots in July are marketed in November and December.   October and December cattle futures were $6.00-$8.00 higher than cash cattle for most of the month of July.   Cattle were purchased in July with October and December   cattle contracts sold as a hedge.   This $6.00-$8.00 futures premium during July was larger than normal.   Now that December futures are close to cash cattle, hedges can be lifted and cattle sold.   Feed-lot operators are selling cattle normally scheduled for mid-to-late December.   These cattle are being sold at lighter than normal finishing-weight, hence the rather large weight loss.   Feed-lots want to be as up-to-date as possible in their cattle sales as they know of the large increase coming for 1^st quarter cattle numbers.   The above means we are current in marketings but still have larger 1^st quarter supplies.  

                      RECOMMENDATIONS:

                      We need a short term rally to sell February Cattle futures.

1.             A rally between 8550-8650 should be sold.   A buy-stop above 8800 should be used.

PFGBEST Research Team

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

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