Cattle/ Hogs lower- Strong $$- What's Ahead ?- by Paul Nelson

Published on: 19:45PM Jun 04, 2010
 
06-04-10 
Live Cattle
Feeder Cattle
Lean Hogs
LCM0
90.95
-1.15
FCQ0
108.87
-0.80
LHM0
79.05
-1.40
LCQ0
88.65
-1.50
FCU0
108.90
-0.70
LHN0
79.72
-1.90
LCV0
89.97
-1.47
FCV0
108.80
-0.65
LHQ0
80.77
-2.15
 
Index
108.01
+0.04
Index
80.11
-0.49
 
Live Cattle: 
 
·         FAS Export/Sales 7900 mt (very light)
·         Clean up trade KS 94.00; NE 155.00
·         Midday box beef Ch 162.31 (-1.26); Se 154.62 (-1.48) 184 lds
·         Ch/Se spread closes at new high for the YR.
Live cattle- Settled lower sharply lower stock market, “imploding” Euro Currency. Minor clean up trade reported in KS @ 94.00 and NE @ 155.00. The strong basis should keep cattle moving next week. Packers are expected to pull heavily form contract cattle next week. This may allow cash bids to back off but with a discounted futures market and choice select spread @ 8.05 we would expect futures to recover and cash to hold a steady weak tone next week. Beef prices should remain weak, our expectation for support basis Choice 148.00-151.00. Will June futures move to par? Possibly, if Midwest holds premium, forward sales pick-up again; the threat of deliveries should remain low allowing June basis to narrow further. SIDE NOTE-Late summer/ fall Cattle basis-Do not expect a repeat of OCT 09 cattle expiration. The futures market should be efficient and anticipate deliverable cattle for Aug and Oct delivery.  
Looking Ahead: The Midwest is still holding a slight premium, we continue to believe June futures will move toward cash and trade par in the coming weeks. Forward sales remain a critical concern, today’s export number was very poor, Friday’s Wkly national box beef 114A, 123a, 130 volume was poor. Keep in mind last trading day (6-30) is a ways off and beef demand and available supplies on June 1st is normally very different comes July 1st. Hedgers should have rolled ALL June hedges to Aug and Oct.

Boxed Beef Cutout Values
Choice
Select
Loads
160.45
-1.47
152.41
-1.74
263
Choice/Select spread settled at +8.05
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
130,000
130,000
128,000
625,000
671,000
 
 Feeder Cattle: 
·         Index up slightly
·         Updated Trade Rec
·         New Hedge rec.
 
This week interest from the northern plains keep prices firm. Market expectation is "all available cattle has moved in response to May prices" we would expect CME feeder prices to hold next week and attempt to close the technical gap 111.00-111.52 before seasonal summer pasture conditions force movement and fund liquidation selling presses the Aug contract.   
 
Looking Ahead:   Our Technical rally has been support by moderate interest from feed yard replacement and favorable pasture conditions. Hot weather has returned to the southern plains, 6-10 day is calling for above temps. Summer is here and at some point grass conditions will suffer, looks like we are here. If conditions become sever cattle will move. Technically the markets have several gaps to close, (111. 52-111.00). The technical rally back to 111.60 is a real possibility. Balancing the potential for higher corn will certainly add a few twists.  Spec Recs: LONG FCQ @ 108.00; protect position on low close below 108.20; Exit pos @ 111.50
 
Hedger REC.  Look to sell into the technical short covering rally sell FCQ 111.00-112.00; Aug should begin to loss to Sep once the gap is closed (111.00-111.52)
 
Lean Hogs: 
 
Direct Live Trade Wtd Avg
National
75.73
-0.45
17,555
IA/MINN
76.19
-0.96
6440
W. Cornbelt
76.20
-0.97
11983
E. Cornbelt
74.66
-0.07
5380
 
Pork Carcass Cutout Values
Cutout
 
Loads
84.78
-0.59
42
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
405,000
389,000
406,000
1,791,000
2,093,000
 
 
·        





  • Softer Cut-out continues
  •  Weak cash trade expect early next week
  • June expires next Friday 6/14
 
Lean Hogs- settled sharply lower as cash trade heads lower and concerns the index will expire in the high 70’s.  Slaughter numbers have improved but since the Mch pig crop our wkly kill is off aprox 649,000 hd from last yr. We mentioned earlier in the week that summer slaughter numbers will probably hold 1.9-2.0 hd/wk., which is current to May’s slaughter. The “hangover” of our liquidating market will be behind us once June expires. Weights are high; weather will be a factor; We are still holding a sideways to liquidating trend as we move toward more seasonal trending market.  
 
Looking Ahead: We are estimating summer month slaughter will at least be the same as May. Futures are still liquidating, June’s expiration and large long July fund position will remain a factor for next week. Historically lighter summer weights and better summer demand for trimmings, and bellies will support a move higher. The “trade” wants to believe cutout can hold and packer margins will keep slaughter numbers up allowing for higher prices. Next week we are looking for transition back to trading range with current lows to hold. Please don’t get to bearish down here. Look for product prices to hold last half of Jun and move higher for JULY. Keep a close eye on belly prices, expectations for higher trade as summer pipe lines are refilled.  
 
Trade Rec: Buy Aug/Oct at 6.20; protect STP close @ 5.85; Exit trade 8.80

Hedge rec:
Cover summer to Oct feed needs; buy Oct 74 puts sell 68 puts for 2.50 or better for seasonal mid May to July break. Dec buy Dec 70 puts sell Dec 80 calls. Place orders to cover short Dec 80 calls @ 50
 
Best regards,
Paul Nelson
 
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