PFGBEST Livestock Market Comment

CHICAGO - Jul 21/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.

HOGS: (week ending 07/17/10)

Weekly Statistics

I. Pork Product (wholesale)

a. Loins 120

i. Last week 122

ii. Last year 112

b. Butts 91

i. Last week 95

ii. Last year 78

c. Hams 78

i. Last week 82

ii. Last year 56

d. Bellies (bacon) 115

i. Last week 112

ii. Last year 86

II. Cash Hogs (Friday close)

a. Peoria $53.00

i. Last week $52.00

ii. Last year $36.00

b. Zumbrota $53.00 (St. Paul)

i. Last week $54.00

ii. Last year $39.00

III. Lean Hog Index

a. 7796

i. Last week 7933

ii. Last year 5871

IV. Pork Price (13 cut retail average)

a. $2.45

i. Last week $2.25

ii. Last year $2.40

V. Packer Operating Margin (Friday close)

a. +$9.14

i. Last week +$8.06

ii. Last year +$6.22

VI. Weekly Pork Production (millions of pounds)

a. 404.1

i. Last week 347.9 (4-day)

ii. Last year 391.8

VII. August Lean Hog Premium/Discount to Lean-Hog-Index

a. +374

i. Last week +69

ii. Last year +596

August lean hog futures closed at 8170 ' a gain of 168 points ($672.00). October futures closed up 60 points at 7570. Eighty points higher for December futures at 7345.

Open interest increased by 11,395 contracts (+6%) for the week ' now at 200,307.

Average daily volume was 45,000 contracts. This was up 12% from the previous week and up 45% from the previous four week average of 36,000 contracts. A 'futures' market going up on increasing open interest and increasing daily volume usually means higher prices are ahead.

For the five-day period ending 07/13/10, speculative funds decreased their net-longs by 1755 contracts. Futures/options speculative funds decreased net-longs by 2149. This group is still a net-long 12,787 and 26,035 contracts, respectively. This is a decline of 66% for futures-only and 50% for futures/options from our 05/11/10 highs.

Commercial accounts decreased their net-shorts by 1884 in futures-only and 2411 contracts in futures/options. This group now net-short 1887 and 12,344 contracts. Futures-only commercial net-shorts have declined by 94% from 04/06/10 highs and futures/options have declined 72%.

Managed money accounts (futures/options) decreased net-longs by 4042 contracts. This group is now net-long 28,939 positions ' a decline of 30% from 04/06/10 highs of 41,571.

Index funds liquidated 3455 net-shorts and now find themselves a net-long of 90,698 contracts.

Non-reportable position holders got out of a small 129 net-shorts (futures-only) and 262 positions in the futures/options category. This group is now net-short 10,900 and 13,691 contracts, respectively.

'Friendly' news for the week included Canadian feeder pig imports into the U.S. remaining 10.3% under last year. In addition, the USDA released May exports, on Tuesday, at 362.8 million pounds. This was 2.8% over April and 18.2% over May 2009 '

-22.4% of monthly production. These export numbers were considered a 'bullish' reversal pattern on daily 'bar-charts.' Japan, our largest pork buyer, increased May purchases by 13.4% from May 2009. On a typical year Japan will take up to 30% of our total pork exports.

The un-friendly news of the week centered on Russia producing 350,000 metric tones of pork, January-June, 32.8% higher than January-June 2009. This helps to explain their May imports of 9506 metric tones down 34% from last year.

We talked in last week's missive of our usual July rally in pork product coming out of a four-day 'holiday' production week. Floor traders buy futures breaks the first full five-day week after the Independence Day holiday. This year was helped by a packer operating margin over $9.00 black ' 50% over our 2009 margin for the same week.

If long from our 775-7930 range given last week, it is probably wise to take profits. Most years we would stay long for the next 3-8 days. This year we are going into extreme heat that will limit pork product advances as consumers will back-away from 'cooking' and 'grilling.' Take August hog 'profits' on advances early this coming week.

CATTLE: (week ending 07/17/2010)

Weekly Statistics:

I. Cash Cattle

a. Texas/Oklahoma $94.00 (U.S. dollars per 100 pounds)

i. Last week $92.50

ii. Last year $84.00

b. Nebraska $150.00 (carcass hot-weight)

i. Last week $148.00-$150.00

ii. Last year $132.00

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

a. Choice $153.52

i. Last week $154.37

ii. Last year $136.54

b. Select $144.38

i. Last week $144.68

ii. Last year $130.71

III. Hide and Offal

a. $10.68

i. Last week $10.78

ii. Last year $7.15

IV. Retail Beef Price (15-cut average)

a. $4.10

i. Last week $3.80

ii. Last year $3.60

V. Beef Packer Operating Margin (five-day average)

a. +$15.23

i. Last week +$36.54

ii. Last year -$13.65

VI. August Cattle Futures Premium/Discount to Panhandle Cash Cattle

a. -$1.73

i. Last week -$1.58

ii. Last year +$2.37

VII. Weekly Beef Production (millions of pounds)

a. 509.1

i. Last week 458.9

ii. Last year 493.1

VIII. Weekly Cattle Slaughter

a. 666,000

i. Last week 602,000 (four day holiday harvest)

ii. Last year 634,000

August cattle futures closed the week at 9227 ' up 207 points ($828.00). October closed at 9362 ' up 222 points. December closed 155 points higher at 9565.

Average daily cattle volume was 54,000 contracts. This was 3.8% over the previous week's volume and 42% over two week's ago and 42% over the previous four week average.

Open interest increased 3392 contracts to 318,404 (+1.0%). As stated last week, a futures market going higher on increasing volume and open interest is a market that usually continues in the same direction.

As of 07/13/10, speculative funds decreased their net-longs by 1522 contracts in the 'futures-only' category. Adding options we find this group added 1276 contracts to their net-longs. Speculative funds are now net-long 54,555 and 80,346 contracts, respectively.

Commercial accounts (futures-only) increased shorts by a small 376 contracts adding options finds this group increasing shorts by 2821 contracts. Commercial accounts are net-short 23,360 and 43,179 contracts, respectively.

Managed money accounts (futures only) increased longs by 5088 contracts and increased their futures/options positions by 8363 contracts. This group is still net-long 86,378 and 99,764 contracts, respectively.

Non-reportable position holders (futures-only) liquidated a net 545 contracts from their net-shorts and liquidated 320 contracts in the futures/options category. This group is now net-short 33,093 and 38,712 contracts, respectively.

Monday was a quiet tight high-low range day with August cattle closing 12 points lower. We closed 87 higher on Tuesday with help from the Dow closing 171 higher. Wednesday we closed 135 higher helped by May beef exports being 2.4% over May exports of 2009. Thursday and Friday, like Monday, were very quiet in spite of cash cattle trading a contra-seasonal $2.00-$2.50 higher on Thursday.

Friendly news for the week included January-May beef exports up 26% from January-May 2009. May shipments at 67,530 metric tones were 27.4% higher than May of last year and the highest May since 2003. Beef imports are running 15% under last year. USDA reported boxed-beef load count, for the week, was 1445 boxes. This was 27.7% over the previous week and 22.6% over the previous four week average.

Negative news included retail beef prices for June at $4.09 per pound up from $4.01 in May and $3.89 in June of 2009. In addition, beef packer operating margin declined 58% from previous week as packers paying $2.00 higher for cash cattle could not put money on boxed beef. The last two weeks have seen an operating margin decline of 66%. Packers must get up-money on boxed beef this coming week or will be close to operating in the 'red.'

Cattle futures had a strong week pushed by financial indices up 2.5% through Wednesday, strong monthly exports and the threat of extreme heat leading to high death counts for feedlot cattle, thereby keeping feedlots super current. As cattle futures rallied grocery beef buyers (living hand-to-mouth on beef buying) were forced to cover upcoming business by buying sooner than they wanted ' worried that this might be the summer bottom.

We are down 10% from our cash cattle highs of $101.00 and approaching our normal lat spring to summer low of 13%. This has many traders thinking the summer lows have been made. It is doubtful boxed beef pricing can sustain much of a rally over the next 2-4 weeks. As retail beef pricing at $4.09/lb is second highest in history. Cattle futures are currently stuck between extremely current feedlot marketings and very bearish retail beef pricing.

The only near term futures trading would be to sell August futures against buying October futures. This trade should be done with August 100 to 150 under October. A 100 to 150 point protective stop should be used. Exit points for taking profits in next week's report.

Should August cattle advance over the next 5-10 days to 9550 and boxed beef daily volume and pricing has not advanced we would be out-right sellers of August futures.

PFGBEST Research Team

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

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