EHedger Livestock Commentary 7/22/09

Published on: 17:11PM Jul 22, 2009
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Live Cattle
Feeder Cattle
Lean Hogs
Live Cattle: 
  • Panhandle trades $83 live; NE trades $84 live
  • KS trades $83-84 live and 132 dressed
  • Cattle on Feed report Friday
            • Estimates            Range
    • On feed in July                        95.2                        94.1-96
    • Placed in June                                    92.9                        85.6-101.4
    • Marketed in June                        99.4                        93.5-101.9
Live cattle closed lower today. The deferred contracts held up better than the sharply lower Aug and Oct months. Today’s weakness was turned lower on news of cash trade at $83 ($1 lower than a week ago). This was especially disappointing considering that boxed beef has been marching higher and showed strong gains again today. Midday boxed beef was higher with Choice at 142.17 up 1.60 and Select at 135.55 up 1.24. Another possible cause for the sharp downturn again today was the cattle on feed estimates. While, we had not posted any official guesses before today the chatter was for a smaller placement figure. The above figures are friendly for cattle long term, but may have left some traders feeling we had rallied too high as they were expecting placements in the upper 80% again. Today’s cold storage report showed beef up 4% from May and near 2% higher from last year. During this same time a year ago beef stocks only rose 2%. Continue to look for choppy markets as we wait until Friday’s cattle on feed report. Boxed beef is working higher, yet technicals are trending lower and money flow will be a big issue. Aug/Oct has narrowed and should continue. .  
Caution surrounding bullish optimism is warranted at these levels. It has been awhile since we have discussed the financial markets as main drivers of cattle. Looking at a chart of each suggests that cattle prices are still closely tied with economic outlooks.
Boxed Beef Cutout Values
Choice/Select spread settled at +6.60
Wk Ago
Yr Ago
Yr Ago
Feeder Cattle: 
Feeders closed lower on the day. Feeders were pressured by live cattle losses, but supported by corn once again making new lows. This kept feeder cattle in a fairly tight trading range today. The cash index is catching up, but still at a discount. Until we see this narrow do not expect futures to post significant rallies. October feeders should find support just above $102 and strong support near $101.50.
Live cattle looks to be the driver for feeder cattle futures for the remainder of the year as cash grain prices look to stay very cheap compared to year ago levels and even 2-4 months ago levels. The current dilemma for feeders is that corn values look to stay cheap for the remainder of the year, but this will also keep a lid on deferred live cattle prices. The tight supply will keep feeders bullish long term, meanwhile, expect futures to be in a sideways path. New highs will be difficult in the near term. 
Lean Hogs: 
Direct hog markets were mixed with the IA/So.MN direct market at $58.59 up .32; Western cornbelt $58.73 up .28; Eastern cornbelt $56.66 down 1.10; and the National average at $58.12 down .06
Pork Carcass Cutout Values
Wk Ago
Yr Ago
Yr Ago

  • Pork cutout; loins +3.19, hams –3.25
  • IA/MN hog weights 266.2 lbs. vs. 264.9 wk ago and 259.6 yr ago
  • Cold Storage report released
Lean hogs closed lower on the day. October was active today as fund selling was a noted feature. Today’s losses were also accelerated sell stops from new longs as prices moved below some key supporting moving averages. Today’s cold storage report showed a bearish mentality. Pork stocks were reduced 1% from the previous month and 9% higher than a year ago. Meanwhile, the same period last year showed a pork reduction of 8.5%. Bellies were 3% lower than the previous month and 2.7% higher from last year. The same period last year showed a belly reduction of 15%. One positive note is that we are moving product such as loins at these levels. Keep in mind that the huge draw down last year was a result of the Olympics and positive exports. This year we do not have the Olympics and world economies are struggling from year ago levels. Add in the idea that hog supplies are getting backlogged and supplies look to stay abundant. The cooler weather and cheaper corn will not help the situation as today’s hog weights showed gains. (Here was last week’s figures IA/MN hog weights 264.9 lbs. vs. 263.2 wk ago and 260.5 yr ago). 
The past several weeks have seen light slaughters averaging around 1.936 million hogs a week when year ago levels were near 2.10 million. Seasonally hog slaughter should begin to pick up and with positive packer margins plants will want to slaughter as many hogs as possible. The question is if the slaughter begins to average above 2 million hogs weekly can the pork cutout handle this extra production? Volatility will remain in hogs.  The August contract expires August 14. 
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