HOGS: (week ending 07/10/10)
CHICAGO - Jul 14/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.
By Robert Short
Weekly Statistics
I. Pork Product (wholesale)
a. Loins 122
i. Last week 112
ii. Last year 96
b. Butts 95
i. Last week 95
ii. Last year 78
c. Hams 82
i. Last week 82
ii. Last year 49
d. Bellies (bacon) 112
i. Last week 110
ii. Last year 68
II. Cash Hogs (Friday close)
a. Peoria $52.00
i. Last week $53.00
ii. Last year $35.00
b. Zumbrota $54.00 (St. Paul)
i. Last week $55.00
ii. Last year $38.00
III. Lean Hog Index
a. 7933
i. Last week 8066
ii. Last year 5914
IV. Pork Price (13 cut retail average)
a. $2.25
i. Last week $2.52
ii. Last year $2.27
V. Packer Operating Margin (Friday close)
a. +8.12
i. Last week +$7.06
ii. Last year -$7.97
VI. Weekly Pork Production (millions of pounds)
a. 347.9
i. Last week 401.4
ii. Last year 390.3
July lean hog futures closed at 7862 ' up 42 points ($168.00). August futures closed 3 points lower at 8002. Closing at 7510 October hog futures were down 135 for the week.
Open interest declined by 5,087 contracts (-2.7%) from the previous week ' now at 188,912. Hog futures open interest has now declined 18% from our May 1st high. Floor traders usually look for a 20% decline to mark the bottom of 'corrections.'
For the five-day period ending 07/06/10, speculative funds decreased their net-longs (futures only) by 4570 contracts. They are now a net-long 14,542 positions a decline of 65% from their 41,510 net-long position of 05/11/10. This group decreased their futures/options by 4594 ' now net-long 28,184 contracts. This is 49% below our 05/11/10 high of 45,510.
Commercial accounts decreased net-shorts (futures only) by a net of 5108. They, also, decreased their futures/options positions by 5088 contracts. This group is now a net-short 3771 and 14,755 contracts, respectively. From our 05/11/10 this is an 87% decrease in net-shorts for futures-only and a 64% decline in the futures/options category.
Managed money accounts, like commercial accounts, liquidated 4256 of their net-longs. This group is still a net-long 29,405 contacts ' a decline of 32% from our high net-long positions as of 05/11/10.
Index funds liquidated a small 654 net-longs. This group is still net-long 87,243 positions.
Non-reportable added to their net-shorts (futures only) by 538 contracts. Non-reportable futures/options added 494 contracts to their net-shorts. This group now net-short 10,771 and 13,429 contracts, respectively. This is 8% down from our highs in futures-only and down 6.4% from our 05/11/10 highs in the futures/options category.
August hog futures closed 20 to 40 points higher on Tuesday as the cash hog market came in steady (holiday kill back-up not pressuring cash hogs) and product down a very small 38 cents. Wednesday was a 10 to 55 higher close helped by cattle up 70 points as the Dow closed 274 higher. Thursday was as dead as it gets with July futures unchanged and August up only seven points. Friday was a 25 point lower day for July hogs and 87 lower for August futures as 'funds' liquidated 'longs.' This was a surprise as we had put $1.95 on pork product Thursday night. As stated the previous week, it is always hard to trade the first week after the Independence Day holiday as traders are caught between 'backed-up' holiday hogs being bearish against our normal July product rally led by the pork loin complex.
'Friendly' news for the week included Canadian feeder pig receipts year-to-date down a rather large 9.4% from last year. Pork exports through April (last month for USDA data) up 1.5% from April last year. Hog weights declining 1.3 pounds for the previous week.
Negative news continues to be lack of Russian poultry imports and April pork sales to Japan down 7%. In addition, east cost heat has traders worried grilling will be curtailed.
Pork fundamentals still point to higher product into the third week of July. The last two years have seen wholesale pork loin's increase in value approximately 16% by the 24th of July. Add to a pork loin seasonal rally, the lack of available harvest in late July and August (50-119 pounds pig crop numbers down 5%) and it appears we should be looking to buy 'breaks.'
Our August hogs closed 69 points over the lean-hog-index of 7933. The three year average shows a futures premium of 332 points ' so this is a small but friendly sign as August futures are not a large premium to the index.
As product appears good for the next several weeks we should try and establish August 'longs' between 7930 and 7750. A protective sell-stop 150 points under entry point should be used.
CATTLE: (week ending 07/10/2010)
Weekly Statistics:
I. Cash Cattle
a. Texas/Oklahoma $92.50 (U.S. dollars per 100 pounds)
i. Last week $91.00
ii. Last year $82.00
b. Nebraska $148.00-$150.00 (carcass hot-weight)
i. Last week $145.00-$147.00
ii. Last year $130.00
II. Boxed Beef (value reflects US dollars per 100 pounds)
a. Choice $154.37
i. Last week $155.40
ii. Last year $137.36
b. Select $144.68
i. Last week $146.49
ii. Last year $132.35
III. Hide and Offal
a. $10.78
i. Last week $10.85
ii. Last year $7.10
IV. Retail Beef Price (15-cut average)
a. $3.80
i. Last week $3.84
ii. Last year $3.75
V. Beef Packer Operating Margin (five-day average)
a. +$36.54
i. Last week +$45.04
ii. Last year +$2.31
VI. August Cattle Futures Premium/Discount to Panhandle Cash Cattle
a. -$1.58
i. Last week -$1.53
ii. Last year +$1.47
VII. Weekly Beef Production (millions of pounds)
a. 455.9
i. Last week 505.3
ii. Last year 493.1
VIII. Weekly Cattle Slaughter
a. 598,000 (40day holiday)
i. Last week 664,000
ii. Last year 634,000
August cattle futures closed the week at 9020 ' up 53 points ($212.00). October closed at 9140 ' up 48 points. December closed 98 points higher at 9410.
Average daily cattle volume was 52,000 contracts. This was 37% over the previous week's volume of 38,000 contracts and 70% over the two week earlier volume of 30,000 contracts. Volume increasing as a market goes higher is 'friendly.'
Open interest declined 7297 contracts for the week - now at 315,012.
As of 07/06/10, speculative funds added 4262 contracts (futures-only) to their net-longs - now at 56,077. This group futures/options positions increased their net-longs by 5802 contracts ' now at 79,070.
Commercial accounts (futures-only) increased their net-short position by 4807 and 6122 contracts in the futures/options category. This group is now net-short 22,984 and 40,358, respectively.
Managed money accounts added 7835 contracts (futures/options) to their net-longs - now at 91,400.
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.
On the negative side for news this holiday shortened week, we have the USDA raising 2010 beef production by 160 million pounds. A small offset was an increase of 30 million pounds in exports and total yearly beef production of 25.8 billion pounds being 1.2% less than total beef production for 2009.
On the positive side, weekend clearance of beef was above average, in spite of east coast heat, and this brought in Tuesday and Wednesday fill-in business. By late week boxed-beef came under seasonal pressure.
The first half of 2010 beef supplies are estimated to be the smallest since 1998 as large exports and tightening beef imports combined to give first half supplies of 13 billion pounds against last year's 13.4 billion pounds. Second half beef supplies are currently forecast to be up 1.6% from 2009 due to increased placements the last several months.
This weeks 4% to 6% financial indices rally had a large part in putting $1.00 to $2.50 on cattle cash markets. Cattle feeders, encouraged by increasing financial markets, held to their higher asking prices that beef processors paid. This surprise up in cash cattle was the main ingredient for cattle futures advancing 50 to 100 points. Summer heat has curtailed outdoor grilling and this helped our boxed-beef cutout decline by slightly more than $1.00. The combination of processors 'paying-up' for cash cattle, but selling the processed product lower, gave a declining profit margin of 19% from the previous week. A normal seasonal boxed-beef break should find the pricing around $146.00 to $148.00 by late August or early September (now at $154.00).
Fed supplies are still manageable for this time of year as feeders continue to make a profit with cattle at $90.00 to $92.00. This, in turn, helps them pull cattle forward thereby maintaining current feedlot marketings. Even with current feedlot marketings we should not forget the strong seasonal tendency for boxed-beef and cash cattle to decline in price into August. The last few months of placements being over 20% higher than last year could force cash cattle into the $85.00 to $88.00 range by September.
The floor trader has turned bullish on October and December futures on their lack of a normal 500 to 700 point premium to cash cattle. In addition, funds have returned to the 'buy' side. We are short August futures and would use a protective stop at 9170. August cattle closing above their June high of 9105 could push the market into our protective buy stop. It's the wrong time of year to buy an August futures rally. If stopped-out we will look to re-enter the short side from a higher level. Lack of an adequate 'basis' keeps us from selling October or December futures.
PFGBEST Research Team
Phone: 800-361-6855 or 319-553-2181
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