EHedger Livestock Commentary 7/16/09

Published on: 17:22PM Jul 16, 2009
 
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Live Cattle
Feeder Cattle
Lean Hogs
LCQ9
85.60
+0.675
FCQ9
103.90
+0.85
LHQ9
65.225
+1.20
LCV9
91.425
+1.15
FCU9
104.075
+0.875
LHV9
60.475
+1.375
LCZ9
89.95
Unch
FCV9
103.85
+0.75
LHZ9
58.95
+0.65
 
Index
101.23
-0.13
Index
58.67
-0.29
 
 
Live Cattle: 
 
Live cattle closed higher on the day. Futures were strong performers throughout the day with Oct leading the charge. Open interest continues to increase in significant numbers and it is hard to ignore the money flow into cattle. Many funds are looking for inflation hedges and the tight supply issue, which should be highlighted when the next Cattle on Feed report is released July 24th. Cash cattle have yet to trade and direction appears mixed with the higher futures, yet lower boxed beef. The futures rally and historical basis levels suggest that cash prices should trade higher this week. Last week’s trade was mostly $82 live. Bids stand at 81, while asking prices are mainly 85. Midday boxed beef was lower with Choice at 136.85 down 1.23 and Select at 131.15 down 0.55. Support still stands in Aug at 82.50-83.50. Resistance is currently in our range 85-86.50.
 
One cause of concern reducing some of our bullish outlooks is the current cost of feed ingredients, mainly corn. Prices have been slashed in the past several weeks and margins have improved due to the feed break rather than from higher cattle prices. Yet, the tight supply issue and potential for improved demand are still reasons for bullish outlook.
 
Boxed Beef Cutout Values
Choice
Select
Loads
136.64
-1.44
130.91
-0.79
401
Choice/Select spread settled at +5.73
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
123,000
126,000
126,000
494,000
498,000
               
 
Feeder Cattle: 
 
Feeders closed higher on the day. The strength in live cattle and new lows in corn helped the feeder market trade positive the entire day. Open interest is at its highest level since October 2008. Futures are still near contract highs and hold premiums over the CME index, despite the index closing over 100. The cash market will need to continue catching up or the corn market breaking below $3 futures before feeders can push significantly higher again. Traders are beginning to reference tight numbers more often and this will bring buyers on breaks. While the tight cattle numbers are bullish for long-term outlooks do not get impatient, as further rallies will be difficult in the near term. 
 
 
Lean Hogs: 
 
Direct hog markets were mixed with the IA/So.MN direct market at $56.84 down .09; Western cornbelt $57.60 up .79; Eastern cornbelt $56.26 up .24; and the National average at $56.82 up .55
 
Pork Carcass Cutout Values
 
 
Loads
63.92
+0.59
60.3
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
405,000
398,000
420,000
1.567
1.662
 
  • Pork cutout; loins +2.06 (80.71), hams –1.70 (52.78)
  • IA/MN hog weights 264.9 lbs. vs. 263.2 wk ago and 260.5 yr ago
 
Lean hogs closed sharply higher in the front months and slightly lower in deferred contracts. Yesterday’s strong pork cutout inspired today’s round of buying. Money flow from a technical perspective combined with the cutout gains and short covering has rallied August futures to levels not expected. However, today’s high in August managed to fill a gap at 65.45 from June 2nd. It also closed well above its 50-day moving average. August is now the front month and is carrying a large premium over the cash market, which watched June and July trade lower into expiration. Packer margins look to be positive with the cutout overtaking the cash index. With packers now in the black they will fight to keep these conditions. The reduced slaughter should keep hogs available despite higher futures and the generally good weather with cheaper corn will keep weights high. Volatility will remain in hogs. 
 
The US has the cheapest available protein and these low prices appear to be drawing some interest. Exports are a factor that could change quicker than current supply issues. An increase in ham prices is an encouraging sign. Positive news is beginning to surface, while bearish news continues to be the same stories and thus wearing thin. However, do not be surprised to find sellers on strength as futures still hold premiums. With hog liquidation officially occurring bear spreads look to be favored.
 
 
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Regards,
EHedger LLC
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Suite 1520A
Chicago, IL 60604
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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.