PFGBEST Livestock Market Comment

CHICAGO - Jan 28/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.

Weekly Livestock Report- Ending 01/16/10

HOGS: (week ending 01/16/10)

Weekly Statistics

1. Pork Product (wholesale)

   1. Loins 115

      1. Last week 109
      2. Last year 96

1. Butts 79

Last week 74

                                                                                                                    ii.           Last year 75

c.           Hams 68

                                                                                                                        i.           Last week 66

                                                                                                                    ii.           Last year 44

d.         Bellies  (bacon) 92

                                                                                                                        i.           Last week 86

                                                                                                                    ii.           Last year 69

II.                               Cash Hogs

a.         Peoria 41

                                                                                                                        i.           Last week 42

                                                                                                                    ii.           Last year 36

b.         Zumbrota 40 (St. Paul)

                                                                                                                        i.           Last week 40

                                                                                                                    ii.           Last year 38

III.                         Pork Production (millions of pounds)

a.         438

                                                                                                                        i.           Last week 422.7

                                                                                                                    ii.           Last year 472.3

IV.                       Hog Weight

a.         269 (pounds)

                                                                                                                        i.           Last week 268.3

                                                                                                                    ii.           Last year 270.6

V.                             Lean Hog Index

a.         6780

                                                                                                                        i.           Last week 6686

                                                                                                                    ii.           Last year 5813

VI.                       Pork Price (13 cut retail average)

a.         $2.19

                                                                                                                        i.           Last week $2.17

                                                                                                                    ii.           Last year $2.36

February hog futures closed the week at 66997 ' up 272 points.   April futures were up 185 points ' closing 7327.   June lean hog futures up 138 points at 8085.

Speculative funds, large traders and 'managed money' went back to a quiet week.   Speculative funds and larger traders increased their futures-only position by 384 contracts.   Futures and options saw an increase of 510 contracts.   'Managed money' accounts increased by 819.   Futures-only are now a net long 28,493 contracts.   Futures and options a net long 39,801 contracts.   'Managed money' now a long 33,633 futures.   Other than last week, funds have been very quiet trading lean hog futures over the last five weeks.   Open interest for the week increased five percent to 199,459 contracts.   Over the last four weeks, lean hog open interest has increased ten percent.   The above non-commercial traders net long positions are at a record for the second week of January.

The last three weeks, February lean-hog futures have gained 357 points ($1428.00).   During this three week period we put $7.61 on pork product.   Our five year average for a pork product rally is 589 points during the month of January.   We are 30% over this five year average with two weeks to finish the month.   One big reason for this pork product rally is Mexico's ham buying.   Mexico averaged 26,918 metric tons between 2004-2007.   The financial melt down during 2008 found Mexico buying 882 metric tons ' a decline of 97% from previous four-year average.   Year-to-date, Mexico has imported 32,371 metric tons as they rebuild stocks.   This aggressive 'buying' has pushed our ham 'primal' price to 68.35 ' an increase of 63% from last year.   Just as Mexico has greatly influenced our domestic ham pricing, other countries are rebuilding their pork product inventories.

Thanks to a 16'-24' snow storm two weeks ago and the worst operating margin in eight weeks, this past week, our total pork production is down 11% from the same period in 2009.   In addition, we are down 7.4% in total pork production for the last four weeks.

This combination of good exports and reduced production has given us the $7.61 rally in pork product.   Wholesale ham prices are 63% over last year; loins 24% over last year; butts 9% over last year and bellies 33% over last year.   Most analysts believe we are pricing our product out of new domestic demand.   Exports will have to carry the market the next few weeks.

The pork-operating margin, now back to +891 will find pork processors increasing this weeks harvest levels.   With over 400,000 hogs backed-up over the last four weeks it is doubtful they will pay-up to get hogs.   This increased production will stop any near term product advance.   Hog futures (forward looking) will anticipate a product break the week after next.   Local traders will be selling hog rallies this week.

CATTLE: (week ending 01/16/10)

Weekly Statistics:

I.                                     Cash Cattle

a.         Texas/Oklahoma $85.50 (U.S. dollars per 100 pounds)

                                                                                                                        i.           Last week $85.50

                                                                                                                    ii.           Last year $84.50

b.         Nebraska $137.00 (carcass hot-weight)

                                                                                                                        i.           Last week $136.00

                                                                                                                    ii.           Last year $137.50

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

a.         Choice $145.11

                                                                                                                        i.           Last week $142.14

                                                                                                                    ii.           Last year $151.37

b.         Select $140.33

                                                                                                                        i.           Last week $136.82

                                                                                                                    ii.           Last year $144.23

III.                         Hide and Offal

a.         $9.38

                                                                                                                        i.           Last week $9.31

                                                                                                                    ii.           Last year $6.87

IV.                       Retail Beef Price (15-cut average)

a.         $3.87

                                                                                                                        i.           Last week $3.61

                                                                                                                    ii.           Last year $3.70

V.                             Beef Production (millions of pounds)

a.         505.6

                                                                                                                        i.           Last week 494.7

                                                                                                                    ii.           Last year 480.6

VI.                       Packer Operating Margin

a.         +$46.60

                                                                                                                        i.           Last week +$26.10

                                                                                                                    ii.           Last year +$77.25

February cattle futures closed the week at 8735 ' an increase of 153    points ($612).   April closed at 9052 ' an increase of 72 points.   June cattle closed 10 points lower at 8792.   Bear spreads (short February-long differed futures contracts) were unwound this week.

Funds, speculative and index continue to pile into cattle futures.   Futures-only speculative funds and large traders increased their longs by 4005 contracts ' now a net long 51492.   Futures with options added 3506 to the long side ' now a net long of 69125.   Managed money increased their net longs by 5775 contracts for a net long position of 47127.   Non-reportable position holders sold a net short of 4430 contracts ' now net short 36411 positions short.   Open interest for the week increased 4.2% to 281,072.

Goldman Sach's commodity index is always 'rolled' between the 5^th and 10^th business day of the month preceding contract expiration.   In this case, long February futures are 'sold-out' ' being replaced with long April futures.   It is a favorite floor trade to buy February and sell April futures as Goldman goes in the opposite direction.   This forward spreading, almost always, starts between January 9^th and January 14^th.   This is the single biggest reason for the 153 point increase in February futures.

Weekly cattle fundamentals were supportive for higher February futures.   Weekly beef exports were 6400 tonnes ' 42% over the four week average of 4500 tonnes.   Unfortunately, they are 40% under last year.   Beef exports for the month of November came in at 172.6 million pounds, up from 135.9 million the previous year.   The USDA reduced 2010 beef production by 10 million pounds while increasing exports by 55 million pounds.

Boxed beef pricing has increased $5.55 (4%) over the last four weeks.   'Valentine' beef business has been booked.   This usually leads to one of the stronger bearish seasonals in the beef fundamentals.   Boxed beef now declines into the middle of February.   We should look for a correction over the next several weeks.   Corrections should be small as this Friday's cattle-on-feed should show feedlot population minus 2% with shipments +2%-4%.   Feedlot placements should be down 4%-6%.  

We are still waiting for results on the Russia poultry dispute.

Cattle pricing between $88.00 and $92.00 is still expected by April or May.

PFGBEST Research Team

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

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