PFGBEST Livestock Market Comment

CHICAGO - Sep 29/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.

HOGS: (week ending 09/25/10)

By Robert Short

Weekly Statistics

I. Pork Product (wholesale)

a. Loins 1.21

i. Last week 1.27

ii. Last year 1.00

b. Butts .94

i. Last week .96

ii. Last year .68

c. Hams .85

i. Last week .90

ii. Last year .55

d. Bellies (bacon) 1.53

i. Last week 1.60

ii. Last year .70

II. Cash Hogs (Friday close)

a. Peoria $55.00

i. Last week $54.00

ii. Last year $30.00

b. Zumbrota $57.00 (St. Paul)

i. Last week $54.00

ii. Last year $29.00

III. Lean Hog Index

a. 8367

i. Last week 8304

ii. Last year 5211

IV. Pork Price (13 cut retail average)

a. $2.46

i. Last week $2.58

ii. Last year $2.18

V. Packer Operating Margin (5-day average)

a. +$14.32

i. Last week +$17.09

ii. Last year +$6.21

VI. Weekly Pork Production (millions of pounds)

a. 441.0

i. Last week 431.3

ii. Last year 474.1

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

a. -4.65

i. Last week -5.34

ii. Last year -1.79

October lean hog futures closed at 7902 ' a gain of 132 points ($578.00). December futures were up 50 points closing at 7645. February futures closed 7947 down 13.

October hog open interest lost 12,686 contracts for the week but total hog open interest was up 4.9% at 243,374 contracts.

Average daily volume was a light 32,000 contracts down 25.6% from the last week and 20% under last year. A market with increasing open interest and declining volume is looking for a top.

As of 09/21/10, speculative funds added 7430 net-longs to their futures-only positions. Adding options this group added 7075 to their net-longs. Speculative funds are now net-long 46,102 and 61,363 contracts, respectively.

Commercial accounts added 7313 contracts to their futures only positions and 6858 contracts to their futures/options positions. This group is now net-short 33,526 and 45,750 contracts, respectively.

Managed money accounts added 4177 'long' contracts to their futures/options balance sheet. This group is now net-long 60,173.

Index funds decreased their net-longs by 900 contracts. This group is now net-long 93,743 long positions.

Non-reportable accounts were very 'quiet' for the week. Futures-only added 117 shorts for a total net-short position of 12,576 contracts. Futures/options accounts added 218 contracts to their net-shorts now at 15,612.

Hog futures closed higher this week helped by a 2% rise in stock indices, Mexico lifting pork import ban on U.S. largest pork producer and a friendly September 1^st 'cold-storage' report. In addition, hog slaughter rates are still running 6% to 7% under last year's pace.

Pork in 'cold-storage' came in at 384.4 million pounds. This was slightly larger than the average guess of 367 million pounds, but, was 2% lower than the previous month and 27% below last year. The report was considered 'constructive' but was tempered by the 2% decline from the previous month on a five year average decline of 3%. In addition, we have been harvesting 6% to 7% less hogs in August with most traders thinking the 'draw-down' should have been larger, although pork stocks are at a six year low.

Friday's quarterly pig crop was considered 'neutral' to lightly 'unfriendly.' All hogs and pigs as of September 1^st came in at 97.4% of last year on the average analyst's estimate of 97.3%. Kept for breeding was 98.2% of last year on an average guess of 98%. Market hogs at 97.3% were slightly above the average guess of 97.2%. The USDA did revise their 180 pound and up weight group to 94%. This helps to explain the short fall in August and September harvest levels. It appears they 'over-estimated' this weight group in their June 1^st report.

One negative from the monthly 'cold-storage' report was chicken stocks are now 8% over last year as 'dark meat' exports have not resumed to Russia. Should these stocks be 'pushed' on the retail market they could offer protein competition at the retail meat case.

We still anticipate a 600-800 point seasonal break in the lean-hog-index now at 8367. With a larger than normal hog futures discount to this index, we should expect a 300 to 400 point break into November.

We are short October hog futures. We are still short December futures as we have not closed above 7755. Continue to use a protective buy-stop for October futures above 8050.

Selling October/December hogs against buying April should be looked at on 200-300 point corrections.

CATTLE: (week ending 09/25/2010)

Weekly Statistics

I. Cash Cattle

a. Texas/Oklahoma $98.00-$98.50 (U.S. dollars per 100 pounds)

i. Last week $98.00

ii. Last year $84.50

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

a. Choice $157.43

i. Last week $156.62

ii. Last year $138.55

b. Select

i. Last week $151.21

ii. Last year $132.50

III. Hide and Offal

a. 11.12

i. Last week 11.05

ii. Last year 8.84

IV. Retail Beef Price (15-cut average)

a. $3.92

i. Last week $3.83

ii. Last year $3.65

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

a. -$10.42

i. Last week +$4.33

ii. Last year +$9.87

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

a. -$2.48

i. Last week +$1.40

ii. Last year +$1.55

VII. Weekly Beef Production (millions of pounds)

a. 514.9

i. Last week 523.0

ii. Last year 517.1

VIII. Weekly Cattle Slaughter

a. 663,000

i. Last week 675,000

ii. Last year 648,000

October cattle futures closed at 9602 ' down 338 points. December futures closed 383 points lower at 9812 ($1532.00). February futures were down 325 points at 9975.

Average daily volume was 55,000 contracts down 11% from the previous week and 48% over last year. Declining open interest on declining volume should show a market looking for a bottom.

Open interest was down 13,189 contracts for the week. Most of the decrease was in the October contract down over 12,000.

As of 09/21/10, speculative funds increased net-longs (futures only) by 691 contracts. Adding options finds this group liquidating 1696 net-longs. Speculative funds are now net-long 110,424 and 142,504 contracts, respectively.

Commercial accounts added 1827 futures-only positions to their net-shorts now at 72,656. Adding options finds this group added 182 contracts to their net-shorts - now at 96,456.

Managed money (futures/options) decreased net-longs by 7164. This group is still net-long 138,229.

Index funds lightened net-long positions by 3903. This group is now net-long 128,929 contracts.

Non-reportable position holders decreased net-shorts (futures-only) by 1136 contracts and decreased net-shorts by 1878 in the futures/options category. This group is now net-short 37,768 and 46,048 contracts, respectively.

The previous Friday cattle-on-feed had placements into feedlots 7% higher than last year. As the average guess was for placements to be down 1% or 2% from last years pace, we talked in last week's missive of the strong possibility of 'funds' liquidating record net-long positions. This appears to have happened as futures closed more than 300 points lower and open interest down over 13,000 contracts.

Cooler weather saw average steer dressed weights increase five pounds ' now at 851. This is still 18 pounds under last year and goes a long way to explain how we harvested 2.3% more cattle while producing 0.5% less beef from last years pace.

Weekly beef export sales came in at 14,300 metric tonnes. This goes against a four week average of 10,100 metric tonnes. Cumulative year to date sales at 491,300 metric tonnes is 26.9% over last years pace.

USDA reported July exports 23% over July of last year. Even with Mexico down 16% year-on-year. The USDA Foreign Agricultural Service now looks for Mexican beef imports to increase 2%, or more, in 2011 with Pacific Rim countries continuing to run 20% to 30% over 2010 pace.

USDA now expects second quarter beef production to be down 6.3 billion pounds from second quarter 2010. This will be the lowest second quarter production in six years.

Slaughter levels are running above expectations with a favorable live cattle basis (futures under cash) allowing feedlots to sell cattle and maintain a very current front-end supply.

In spite of high priced beef at retail, it now enjoys the tightest price against pork during the last six years. Going forward, beef retail demand should stay strong lead by the end-cuts as fall 'roast' season continues.

Look for cattle cash markets, now at $98.00, to approach the $100.00-$102.00 level by December or January. With August placements up over 7%, year on year, we may lower our estimate of late winter pricing of $102.00 to $104.00. How beef 'moves' against pork, at retail, will tell.

We are trying to buy December futures between $96.00 and $98.00. This past Thursday we did make it to $97.80. Hopefully there is another 50 to 150 points on the downside next week.

Technically a 38% retracement at 9810 may hold further breaks.

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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