PFGBEST Livestock Market Comment

CHICAGO - Sep 22/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.

HOGS: (week ending 09/18/10)

By Robert Short

Weekly Statistics

I. Pork Product (wholesale)

a. Loins 127

i. Last week 124

ii. Last year 100

b. Butts 96

i. Last week 98

ii. Last year 68

c. Hams 90

i. Last week 87

ii. Last year 55

d. Bellies (bacon) 160

i. Last week 154

ii. Last year 70

II. Cash Hogs (Friday close)

a. Peoria $54.00

i. Last week $54.00

ii. Last year $30.00

b. Zumbrota $55.00 (St. Paul)

i. Last week $55.00

ii. Last year $34.00

III. Lean Hog Index

a. 8304

i. Last week 8247

ii. Last year 5259

IV. Pork Price (13 cut retail average)

a. $2.58

i. Last week $2.31

ii. Last year $2.08

V. Packer Operating Margin (5-day average)

a. +$17.09

i. Last week +$13.79

ii. Last year +$7.09

VI. Weekly Pork Production (millions of pounds)

a. 431.3

i. Last week 381.0 (holiday week)

ii. Last year 467.3

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

a. -5.34

i. Last week -4.22

ii. Last year -1.79

October lean hog futures closed at 7770 ' a gain of 45 points ($180.00). December futures were up 125 points closing at 7595. February futures were 153 points higher at 7960.

Open interest was up 14,530 contracts for the week. Open interest is now at 231,836 contracts.

Average daily volume was 43,000 contracts down 6.6% from the previous week and 10% over the same week last year.

As of 09/14/10, speculative funds added 4024 net-long contracts to their futures-only positions and added 3775 net-longs to their futures/options positions. This group is now net-long 38,642 and 54,287 contracts, respectively.

Commercial accounts increased net-short positions by 4898 (futures only) and 4455 contracts (futures options). This group is now net-short 26,213 and 38,893 contracts, respectively.

Managed money accounts added 7212 to their net-longs now at 56,996.

Index funds added to their net-longs by a small 148 contracts. Index funds are now net-long 94,732.

Non-reportable accounts reduced their net-shorts by 874 contracts. They are now net-short 12,459. This group decreased their futures/options net-shorts by 679 contracts.

October hog futures closed 95 lower Monday as floor traders came into the week looking for seasonal weakness in cash hogs and pork product. We closed 215 points higher on Tuesday as we put a surprise $2.59 on product late Monday. Wednesday saw October up an additional 55 points as we again put $1.33 on pork product giving a two day up of $3.92. Thursday saw October hog futures down 105 points as Russia de-listed two U.S. pork plants as they stated there were excessive levels of antibiotics in all carcass shipments. As Russia is running our sixth largest importer of U.S. pork, floor traders took this as quite 'bearish.' Going forward product strength will wane and we will experience our normal product weakness and cash hog weakness albeit at a less than normal rate as hog kills are running 6-7% under last year (June pig crop stated late 3^rd quarter down 3%). If these 'lost' hogs don't show-up in coming weeks we will have to re-evaluate the extent of our forthcoming seasonal weakness.

Wholesale pork is over 60% higher than last year with retail pork pricing hovering close to all-time highs. We see September loads of pork-cuts, as reported by packers to the USDA, running 25% percent under September 2009. This combination of reduced consumption (high retail pricing) and increasing seasonal harvest levels should help take the lean-hog-index, now at 8304, to the low 70's by November.

Hog futures should have a 200 to 400 point break as the above scenario unfolds.

There are two things that must be watched carefully. This year's packer-operating margin of over $17.00 black (last year $7.00 black) and October hog futures discount of over 500 points (three year average 220 discount) to the lean-hog-index. These are two potentially bullish market movers should product not start its seasonal break.

We are short October/December hog futures but would only add on 'breaks' not 'rallies.' We would still add to 'short' October hog futures below 7600 and December hog futures below 7285. Protective 'buy-stops' for October above 8050 and 7755 (raised from 7725 last week) should be used in case product fails to break.

As always, should stock indices explode to the 'upside' we will re-evaluate.

Selling October or December hogs while buying April 2011 futures can be tried on corrections. October lost 62 points to April this week while December gained 18 points on April.

CATTLE: (week ending 09/18/2010)

Weekly Statistics

I. Cash Cattle

a. Texas/Oklahoma $98.00 (U.S. dollars per 100 pounds)

i. Last week $98.00

ii. Last year $84.50

b. Nebraska $154.00

i. Last week $154.00

ii. Last year $130.00

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

a. Choice $156.62

i. Last week $159.42

ii. Last year $141.21

III. Hide and Offal - Not Available

IV. Retail Beef Price (15-cut average)

a. $3.83

i. Last week $3.72

ii. Last year $3.46

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

a. +$4.33

i. Last week +$30.10

ii. Last year +$14.84

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

a. +$1.40

i. Last week -$0.85

ii. Last year +$1.05

VII. Weekly Beef Production (millions of pounds)

a. 523.0

i. Last week 451.8 (holiday week)

ii. Last year 514.1

VIII. Weekly Cattle Slaughter

a. 675,000

i. Last week 583,000 (holiday week)

ii. Last year 645,000

October cattle futures closed at 9940 ' up 225 points ($900.00). December futures closed up 198 points at 101.95. One hundred sixty eight points higher for February closing at 103.00.

Average daily volume was 62,000 contracts. This was 6.1% lighter than last week and 41% more than last year.

Open interest increased 16,809 contracts after declining 21,095 contracts the previous week.

As of 09/14/10, speculative funds decreased net-longs (futures only) by 1338 contracts. Speculative funds, when adding options, increased net-longs by 613 contracts. This group now net-long 109,733 and 144,200. Speculative funds futures/options net-long of 144,200 is a new record.

Commercial accounts decreased net-shorts (futures-only) by 1952 contracts ' now net-short 70,829. Adding options finds this group decreased net-shorts by 1286 contracts for a net-short position of 96,274 contracts.

Managed money (futures/options) increased net-longs by 1536. Managed money accounts are now net-long 145,355 a new record.

Index funds increased net-longs by 745 contracts for a total net-long of 132,831.

Non-reportable position holder's added 614 contracts (futures-only) to their net-shorts. Adding options finds this group adding 1900 contracts to their net-shorts. This group is now net-short 38,904 and 47,925 contracts, respectively.

Beef export sales for the week was one of the lightest of the year. The USDA reported sales of 6700 million tonnes. This was 35% under last week and 42% under the four-week average. Cumulative sales are still good at 477,000 metric tonnes up 26.4% from last year. Beef exports, year-to-date, are running 17% over last year.

A continuing bright spot in exports is USDA data (six week lag) for the month of July. Beef exports were 2049 billion pounds 23% over July 2009. Export sales to Korea were 313% higher and Russia was up 104%.

Steer dressed weight, for the week, came in at 846 pounds. This was up four pounds from the previous week but 15 pounds under last year. We appear to be current on marketings but the five-year average steer weight of 848.4 pounds shows cattle have been gaining weight at a good rate as cooler late summer early fall weather appears.

The major surprise for the week was Friday's cattle-on-feed report. Analysts were looking for placements into feedlots to be 99.4% of last year (high priced corn). The USDA estimate of 107% shocked the beef 'trade' and should give us a good early week break in December and February futures. Marketings for August at 107% were .8% higher than the average estimate but with one more business day this August from August of last year the real number is around 104%. The on-feed number of 103% is slightly bearish against expectations and above the high end of analyst estimates. It will be interesting to see the degree of weakness in cattle futures next week.

This week's rally of 200 points was not expected by most traders. Funds were relatively quiet for the week. Average daily volume was high at 62,000 contracts and open interest did increase 5%. This would suggest trader psychology is quite friendly. A market going up on no news is almost always a market where psychology is bullish and 'few' want to be short.

We are trying to buy December futures in the 9600-9800 area. For now, we will stay with this recommendation. It will be important to see what impact the August cattle-on-feed has on futures.

We still look for late winter/early spring cattle prices between $102.00 and $104.00 (now at $98.00).

As stated last week, should funds continue to add to record net-long positions December lows may be in the $97.00 to $99.00 area.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

PFGBEST Research Team

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

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