HOGS: (week ending 07/24/10)
CHICAGO - Jul 28/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.
By Robert Short
Weekly Statistics
I. Pork Product (wholesale)
a. Loins 118
i. Last week 120
ii. Last year 115
b. Butts 98
i. Last week 91
ii. Last year 69
c. Hams 84
i. Last week 78
ii. Last year 54
d. Bellies (bacon) 122
i. Last week 115
ii. Last year 86
II. Cash Hogs (Friday close)
a. Peoria $52.50
i. Last week $53.00
ii. Last year $37.00
b. Zumbrota $54.00 (St. Paul)
i. Last week $53.00
ii. Last year $40.00
III. Lean Hog Index
a. 7903
i. Last week 7796
ii. Last year 6038
IV. Pork Price (13 cut retail average)
a. $2.36
i. Last week $2.45
ii. Last year $2.06
V. Packer Operating Margin (Friday close)
a. +$9.28
i. Last week +$9.14
ii. Last year +$10.21
VI. Weekly Pork Production (millions of pounds)
a. 395.4
i. Last week 404.1
ii. Last year 407.1
VII. August Lean Hog Premium/Discount to Lean-Hog-Index
a. +419
i. Last week +374
ii. Last year -133
August lean hog futures closed at 8322 ' a gain of 152 points ($608.00). October futures closed up 132 points at 7702. Ninety points higher for December futures at 7435.
Open interest increased by 1,700 contracts for the week ' now at 202,007.
Average daily volume was 37,000 contracts. This was down 18% from the previous week's 45,000 contracts and 2.7% lower than the previous four week average of 38,000 contracts.
For the five-day period ending 07/20/10, speculative funds added 6776 contracts to their net-longs. Adding options finds this group adding 7315 contracts. Speculative funds now net-long 19,563 and 33,349 contracts, respectively. Encouraged by financial indices up 3 ½% to 4 ½% speculative funds added to their net-long positions two of the last three weeks.
Commercial accounts increased their net-shorts by 6128 in futures-only and 6546 contracts in the futures/options category. This group now net-short 8015 and 18,890 contracts, respectively.
Managed money accounts (futures/options) added to their net-longs by 6277 contracts. This group is now net-long 33,417.
Index funds added 1623 contracts to their net-longs now at 92,320 contracts.
Non-reportable position holders increased their net-shorts (futures-only) by 648 contracts. Adding options we find this group added 759 contracts to their net-shorts. This group now net-short 11,548 and 14,460 contracts, respectively.
'Friendly' news for the week centered on the monthly cold storage report. Total pork stocks at the end of June stood at 310 million pounds. This was seven million pounds under the average analysts' guess, 8.1% less than the previous month and 29% under June 2009 stocks. In addition this was the lowest June ending stocks in five years. As expected we put $4.59 on pork product for the week helping to keep packer operating margin at a 'health' $9.28 black.
The discouraging part of the week was the buying by 'funds' and floor traders could only close hog futures 130 to 150 points higher. The probable cause of this poor showing was the hog premium to the lean-hog-index. We went home Friday with August futures 419 points premium to the lean-index. Our two year average for this day is 173 points discount. In other words, hog futures have built-in the pork product rally that should last for the next 3-8 days.
Futures will always be forward-looking and coming up in August is our summer high in cash hogs and lean-index. The lean-hog-index usually breaks over 20% into late fall. The previous three year break has been 28%. This would take our present 7903 hog index to 5690 by the first ten days in November.
Trader psychology will start to worry about this seasonal sell-off on rallies the next two weeks. This is the reason for taking profits this week on our long August hog futures. We will try to sell October hog futures between 7700 and 7850 if given. If October futures should rally over 7750 for two days but not close above 7750-sell. Risk 150 points from entry price.
We talked weeks ago of buying cattle and selling hogs. The August cattle/August hog spread has gained 900 points, October cattle/October hog 700 points and December cattle/December hog 500 points. There is no reason to take profits on this spread ' hold tight.
CATTLE: (week ending 07/24/2010)
Weekly Statistics:
I. Cash Cattle
a. Texas/Oklahoma $95.00 (U.S. dollars per 100 pounds)
i. Last week $94.00
ii. Last year $83.00
b. Nebraska $150.00 (carcass hot-weight)
i. Last week $150.00
ii. Last year $133.00
II. Boxed Beef (value reflects US dollars per 100 pounds)
a. Choice $154.66
i. Last week $153.52
ii. Last year $142.85
b. Select $146.45
i. Last week $144.38
ii. Last year $136.71
III. Hide and Offal
a. $10.65
i. Last week $10.68
ii. Last year $7.57
IV. Retail Beef Price (15-cut average)
a. $3.84
i. Last week $4.10
ii. Last year $3.74
V. Beef Packer Operating Margin (five-day average)
a. +$7.95
i. Last week +$15.23
ii. Last year -$0.72
VI. August Cattle Futures Premium/Discount to Panhandle Cash Cattle
a. -$1.58
i. Last week -$1.73
ii. Last year +$0.72
VII. Weekly Beef Production (millions of pounds)
a. 511.5
i. Last week 509.1
ii. Last year 484.2
VIII. Weekly Cattle Slaughter
a. 666,000
i. Last week 666,000
ii. Last year 622,000
August cattle futures closed the week at 9342 ' up 115 points ($460.00). October closed at 9472 ' up 110 points. December closed 82 points higher at 9642.
Average daily cattle volume was 42,000 contracts. This was 22.3% lower than the previous week and 3.5% less than the previous four week average.
Open interest increased a large 10,175 contracts to 328,579.
As of 07/20/10, speculative funds increased their net-longs by 7643 contracts in the 'futures-only' category. Adding options we find this group added 12,064 net-longs. Speculative funds are now net-long 62,198 and 92,411 contracts, respectively.
Commercial accounts added to their net-shorts by 7122 in 'futures-only' and 11,905 contracts in their 'futures/options' category. Commercial accounts are now net-short 31,840 and 55,084 contracts, respectively.
Managed money accounts (futures only) increased net-longs by 9484 contracts and their futures/options positions by 14,105 contracts. Managed money is now net-long 95,862 and 113,869 contracts, respectively.
Index funds decreased net-longs by 37 contracts. This group is net-long 135,577 positions.
Non-reportable position holders (futures-only) decreased net-shorts by 837 contracts. This group is still a net-short 30,358. In their futures/options positions they increased net-shorts by 159 contracts ' now net-short 37,326.
Cattle closed over 100 points higher for the week helped by hog's seasonal 150 point rally and financial indices advancing 2 to 2 ½% forcing funds to be large buyers. The combination of higher futures and extreme heat (cattle death loss) caused cash cattle to trade $1.00 higher at $95.00.
Thursday's cold-storage report gave 'friendly' pork and beef stocks. Pork in storage the end of June at 410 million pounds was 29% under June stocks of last year and beef stocks of 375 million pounds were down 14% from June 2009.
Friday's cattle-on-feed gave us placements for June up 17% from June 2009. This was 3.3% under the average analyst's estimate and 91.6% of June 2008 placements. June 2009 placements were very light thereby skewing 2010 numbers. Total on-feed at 103% of June 2009 was in-line with forecasts and marketings of 100% (average analyst estimate ' 101.7%) was ever-so-slightly unfriendly. With the cold storage and cattle-in-feed reports supportive of futures we closed slightly lower on Thursday and Friday.
We have just had a six week 600 point August cattle futures rally. During this six week period cash cattle advanced a contra-seasonal $3.00 to $95.00 basis Texas cattle. Packers must sell boxed-beef higher to protect their operating margin, but, boxed-beef has advanced $1.49 helping to take operating margins from a +$48.65 on July 1st to -$4.55 by this Friday's close.
A friendly basis (futures under cash) will keep feedlots current but selling $4.09 retail beef ($4.11 record high in 2008) in the heat of August should dampen upcoming beef business.
Boxed-beef business continues to run 10%-15% under last year levels. This week's harvest of 666,000 (same as previous week) being 7% over last year should help put addition seasonal pressure on cash cattle and August futures.
There is no change from last week's missive. Sell August cattle against buying October cattle on a spread basis. This spread should be done with August futures 100 to 150 points under October. Over the next three weeks this spread should work for 100 to 200 points. A 100 to 150 point protective buy-stop should be used.
Weeks ago we talked of buying cattle against selling hogs. This cattle-hog spread has made 500 to 900 points depending on month used. August hogs should fall-away quicker than cattle in August so add to this trade on 1-2 week corrections.
PFGBEST Research Team
Phone: 800-361-6855 or 319-553-2181
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