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Cattle finish week on new lows, while hogs approach them

Published on: 16:31PM Dec 05, 2008
 
(866) 433-4371         info@ehedger.com
 
 
Live Cattle
Feeder Cattle
Lean Hogs
LCZ8
81.550
-1.525
FCF9
86.650
-1.450
LHZ8
57.450
+0.350
LCG9
81.450
-1.625
FCH9
85.275
-1.625
LHG9
64.200
+0.550
LCJ9
83.375
-1.750
FCJ9
86.400
-1.950
LHJ9
69.375
-0.475
 
Index
91.87
-0.42
Index
54.47
-0.37
 
Live Cattle: 
·    Dec futures first notice day 12/8, option expiration today
 
Live cattle closed lower again on moderate volume traded. Live cattle were pressured from the open and nearly traded limit down before rebounding around noon from the lows. The lower trade this week has left cattle at new contract lows and at levels not seen since 2006. Between the economy and sharply lower boxed beef for the week futures were lower every day. Midday boxed beef was lower with choice at 143.93 down 1.85 and select at 136.43 down .71. The slaughter for the today is at 121,000 giving a WTD (w/ Saturday) of 618,000 vs. 666,000 a year ago. This is a light slaughter and initially quite negative. The yearly slaughter for 2008 is now 0.1% below year ago levels. 

Looking Ahead: Futures are now maintaining an even sharper discount to cash trade from last week, yet it appears that futures will have difficult rallying. Cash traded at $87 this week and looks to remain on the defensive for next week. Demand concerns are outweighing smaller production. The supply side fundamentals are friendly, but they are not the current driver of this market. The state of cattle futures right now is erratic and on rallies producers should consider protection through the form of options strategies because of uncertainty in demand. Do not be surprised by a price in the upper 70’s for Feb cattle. We are already there in the June contract.
 
Boxed Beef Cutout Values
Choice
Select
Loads
143.15
-2.63
136.0
-1.14
341
Choice/Select spread settled at 7.15
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
121,000
127,000
129,000
604,000
650,000

 
Feeder Cattle: 
 
Feeder cattle traded sharply lower on the day, yet settled $1 off of the day’s lows. 
Just like live cattle, feeders once again settled at new contract lows. The action continues to follow live cattle and the stock market. Today the CME index settled 0.70 lower at 91.17. This action was the sharp downturn that we anticipated to be short-term buyers. Place sell stops just below today’s lows. With the oversold condition we will look for an upside objective towards 88-90 in Jan and March. 
 
 
Lean Hogs: 
Terminal market hogs were steady to $1 higher trading $37-$39. Direct hog markets were mixed with the IA/So.MN direct market at $54.02 up $.17, Western cornbelt $53.97 up $.12, Eastern cornbelt $54.41 down $.25 and the National average at $54.15 up $.01.
·    IA/MN weekly hog weight 267.8 lbs vs. 268.3 wk ago and 270.1 year ago
 
Lean hogs closed mixed on the day on active volume. Generally the spreaders were active in getting out of positions for the weekend. This caused front months to finish in positive territory, while deferred contracts showed 3-digit losses. We believe this will continue as there appears to be further premium that can be erased from the deferred contracts (just look at live cattle). The slaughter was very large with a daily total of 433,000 giving a WTD of 433,000 and a Saturday slaughter of 201,000. Futures are approaching contract lows and we believe that this market has the potential to trade past them. Hogs are still called lower for Monday.
Looking Ahead: Cash and futures have made a solid attempt to push higher, yet it appears they have exhausted their upside potential for now. The premiums in the deferred contract still look to be too large and we are not far from making new lows in many months. Look to be selling rallies because of demand concerns and continued large hog slaughter numbers. 
 
Pork Carcass Cutout Values
 
 
Loads
61.77
+1.53
45.0
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
433,000
427,000
421,000
2.172 m
2.127 m
  
 
 
 
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Trading commodity futures involves substantial risk of loss and may not be suitable for all investors. The recommendations express opinions of the author. The information they contain is obtained from sources believed reliable, but is in no way guaranteed. The author may have positions in the markets mentioned including at times positions contrary to the advice quoted herein. Opinions, market data, and recommendations are subject to change at any time.