Cattle higher supported by month end "fund" positioning

Published on: 18:35PM May 27, 2010
                                               
866.433.4371     
 
 
05-27-10 
Live Cattle
Feeder Cattle
Lean Hogs
LCM0
91.57
+0.77
FCK0
108.55
+0.07
LHM0
81.17
-0.47
LCQ0
90.77
+0.85
FCQ0
108.50
+0.20
LHN0
82.70
+0.10
LCV0
91.77
+0.67
FCU0
108.60
+0.30
LHQ0
82.90
-0.32
 
Index
109.15
-0.23
Index
83.82
-1.01
 
Live Cattle: 
·         Wkly FAS exp/sales 17,800 mt (Very respectable)
·         KS 93.00- 94.00, 150.00-152.00 5800+ hd.
·         TX 93.50-94.00; NE 152.00; IA 93.50
·         Month end  fund buying returns
·         Mid Day Beef Ch 165.02 (-1.12); Se 157.99 (-1.49) 146 lds
 
Live cattle- Settled higher off continued spec short covering in pre-holiday trade. Outside markets lent a supportive hand as the futures market closed the gap (90.12-89.80 lcq) left earlier this wk. We would expect month end buying and favorable holiday weather to add strong weekend clearance to be supportive leading into early next week. Though, liquidation remains our primary market driver for the moment, since our OI high of 376,949 (5/11) we are down 30,000 contracts; in Feb. OI was just over 280,000. As you can see, the market has taken on a tremendous amount; more liquidation work needs to happen.   Equity funds need to support their positions in the Stock market which should support a recovery in the outside markets heading into week’s end. Live trade was expected to find support @ 94.00; we remain hopeful firming outside markets and the packers need for cattle will hold cash.
 
Looking Ahead: Fundamentals remain supportive to cattle prices but given the Very large Fund position and technically damaged market; liquidation should be the driver for the coming weeks. Look to take advantage short term month end support and expected strong weekend clearance. Hedgers should use this opportunity to roll the last of the June hedges to Aug and Oct.
UPDATE-Trade Rec: Long Dec short Oct @ -1.00; Long Oct short Aug @ -1.00 Exit position at -2.35; carry a STP close only @ -0.50.
 
Hedgers should be ready for fund liquidation-Buy 90 LCQ Puts sell 5 Sept CORN 350 puts at even money. This will protect lower cattle and offset potential higher corn.
 
Boxed Beef Cutout Values
Choice
Select
Loads
164.83
-1.31
157.52
-1.96
236
Choice/Select spread settled at  +7.31
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
130,000
130,000
131,000
517,000
395,000
 
 Feeder Cattle: 
·         New Spec trade Rec
Cash trade remains on the defensive; all weights have trended lower with light feed yard interest.  The market remains pinned until the next round of feed yard inertest with today’s break maybe as early as next week. OI continues to liquidate adding additional pressure. MTD private placement data is suggesting placements well above YA which should put On Feed at or near 100% for June 1st. Take advantage of fat cattle pricing support from month end Fund support.
 
Looking Ahead:   Inputs (corn prices) will be the main driver going into the first half of June. Technically the markets have several gaps to close, (111. 52-111.00). Although we remain negative a technical rally back to 111.60 is a real possibility. Balancing the potential for higher corn will certainly add a few twists.  Spec Recs: BUY FCQ @ 108.00 protect the position on new low close 107.20; Exit pos @ 111.50
Lean Hogs: 
 
Direct Live Trade Wtd Avg
National
75.91
-0.95
7655
IA/MINN
76.37
-0.86
1771
W. Cornbelt
76.49
-0.73
3897
E. Cornbelt
75.31
-1.10
3558
 
Pork Carcass Cutout Values
 
 
Loads
87.95
+0.50
89.8
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
396,000
397,000
427,000
1,531,000
1,292,000
 
 
·        






  • Cutout creeps higher as Hams prices hold upper 70’s 
  • Wkly IA/MN weights 270.8 up #0.5 lw; up # 2.7 ya
  • Sideways to lower trend continues
 
 
 Lean Hogs- settled moderately lower to mixed and near session lows. Technical resistance has formed @ 82.10-82.25 which was tested again this morning, having failed to hold to early support and weaker cash tone futures trended lower for the balance of the day.  What’s ahead from here? side ways  to liquidating for the next few weeks; look for a small push higher into month end but otherwise we look for seasonal trends to take over for now. Producers continue to add weight, this will become more difficult in the coming weeks but with B/G holding 270+ the market has room to give before above normal temps can be an issue. At current prices, exports appear to be the “Tipping Point” for higher prices- Sharp drop in cut out will be the catalyst for lower prices as long as weight follows the seasonal trend.  
 
Looking Ahead: The Gaps have been filled in the June…so what are you going to do for me now? Option 1- Packer slows the kill further, cut out fails to respond to the light slaughter-sell futures against short term resistance points. Option 2-light kill, higher cutout- choppy futures market. Option 3- kill picks up, cut out holds- buy near-by futures. At this point Option 1 looks most probable for the next 2-4 weeks.
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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