EHedger Livestock Commentary 6/03/09

Published on: 17:48PM Jun 03, 2009
 
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Live Cattle
Feeder Cattle
Lean Hogs
LCM9
79.50
+0.225
FCQ9
96.125
-1.05
LHM9
57.30
-2.45
LCQ9
80.775
+0.125
FCU9
96.40
-0.925
LHN9
60.35
-1.80
LCV9
85.85
-0.10
FCV9
96.85
-0.825
LHQ9
62.775
-0.275
 
Index
99.49
-0.20
Index
59.76
+0.36
 
 
Live Cattle: 
 
·        NE trades $82 live; KS trades 130.50 dressed
·        Revised Tuesday Cattle Slaughter to 126,000 (3,000 lower)
 
Live cattle opened mixed and closed mixed. Lean hogs continued their downward spiral and cash fundamentals for cattle remain providing pressure to live cattle. On the other side is the thought that yesterday’s losses were overdone and futures are looking to hold support with a discount to the cash market. Historically, basis levels for June are $1-2.50 discount. With cash trade today at $82 and yesterday at $83 this is suggesting support. Otherwise, no major changes are seen from yesterday’s commentary. Midday boxed beef closed lower with choice at 142.56 down 0.06 and select at 136.75 down 0.00. Maybe fundamentals have changed, but keep in mind that the cattle market is already showing a steep discount in the summer month futures to the cash market. This is unlike the hog market where futures have been carrying a large premium. Demand needs to lead the market the higher, yet this will be difficult with other cheap proteins.
 
June and Aug between 80-82 is being seriously tested as a result of lower beef and sharply lower pork. With June under $80 we will be watching to see if this spike lower is similar to the December lows or if new fundamentals are in place. Look for a close above $80 by the end of the week. June options expires Friday with the majority of open interest in puts from strike prices of 82 and lower. $80 puts have 6,238 contracts. The majority of open interest in calls are 81 and above.
 
Boxed Beef Cutout Values
Choice
Select
Loads
142.19
-0.43
135.69
-1.06
303
Choice/Select spread settled at +6.50
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
128,000
130,000
128,000
383,000
376,000
               
 
Feeder Cattle: 
 
Feeder cattle closed lower on the day. Feeders saw follow through selling from yesterday’s limit down weakness along with weaker outside markets. Demand for feeders has been drying up as corn prices have worked higher. This has and should continue to affect cash markets in the near term as lenders are reluctant to loan money and feedlots have profitability issues as cattle prices have been going lower and feed costs rising. The question remains when will corn run out of momentum? We will have a better understanding at the end of the month when the USDA posts the new acreage and stocks report. Until then look for feeder cattle to follow live cattle. However, further breaks in feeders should now be bought. Feeders …..http://www.ehedger.com/sign-up/
 
 
Lean Hogs: 
 
Direct hog markets were lower with the IA/So.MN direct market at $57.42 down 1.01; Western cornbelt $57.65 down .98; Eastern cornbelt $53.96 down 1.67; and the National average at $56.20 down 1.47
 
Pork Carcass Cutout Values
 
 
Loads
55.20
-1.17
188.1
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
421,000
429,000
424,000
1.257
1.259
 
  • Pork cutout: loins +.58, hams -.64
  • IA/MN hog weights 270.1 lbs. vs. 268.1 wk ago and 264.5 yr ago
 
Lean hogs closed mixed with sharp weakness in the nearby months and strength in the deferred. Liquidation occurred early this morning in the nearby months with speculators finishing what they could not get done yesterday. With yesterday’s lower cutout there is no reasons to try and bottom pick oversold hogs. This theme, along with lower cash hogs look to continue tomorrow. In addition, hog weights jumped higher and herd liquidation needs to continue. The slaughter was at 421,000 giving a WTD of 1,257,000. Direct markets have been between $55-60 for some time now and this area looks to be where June will expire (leaving potential for further weakness in June, July, and Aug). We have been speaking for several weeks of the large premium futures have been carrying over the CME index. Today’s action eliminated the premium in the June contract, which expires Friday the 12th
 
Eventually, cheap pork will find value, but it doesn’t appear we have reached that level as demand is still a major concern. The path of least resistance for the summer months still appears to the downside.
 
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EHedger LLC
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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.