EHedger Livestock Commentary 8/24/09

Published on: 16:21PM Aug 24, 2009
 
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Live Cattle
Feeder Cattle
Lean Hogs
LCQ9
85.175
+0.175
FCQ9
100.10
-0.05
LHV9
46.825
-1.025
LCV9
88.80
+0.20
FCU9
100.325
-0.375
LHZ9
46.00
-1.325
LCZ9
88.225
+0.075
FCV9
100.45
-0.175
LHG0
52.05
-1.525
 
Index
100.36
-0.30
Index
49.32
+0.10
 
 
Live Cattle: 
 
  • Cattle on Feed Report released Friday
          •    USDA                        Estimates
    • On feed Aug 1                      98                            96.6
    • Placements in July            113                         107.3
    • Marketings in July                95                            95.1
 
Live cattle closed slightly higher for the day. Futures saw a mixed performance with initial pressure on the open from a bearish cattle on feed report, yet buying quickly surfaced and took futures higher on the day. The buying was a result of late Friday’s cash trade at 83.50 ($1.50 better than a week ago) which offset the downside of the report. This week I expect a continuation of cattle’s trading range. Resistance in October still looks to be 89 and then 89.50. Support looks to be the 100-day moving average just below 88.50. Currently there is no clear direction on which side October will break out. Cash fundamentals this week also look supportive with today’s higher boxed beef and smaller showlists across the country. In addition, tight supplies should eventually take cattle higher, yet October is already holding a sizeable premium to the cash market. Midday boxed beef was higher with Choice at 143.14 up .74 and Select at 135.52 up 0.27. 
 
The cattle on feed report was bearish. On feed numbers and placements were at the high end of estimates. These numbers suggest that cattle work towards the bottom of the trading range towards $85 in Oct and Dec. The higher on feed number tells us more beef will be available, especially with weights. Also, the tight supply issue will not be as big a concern with the higher placement figure. This week’s cash direction looks to play a big role on futures price.
 
 
Boxed Beef Cutout Values
Choice
Select
Loads
143.03
+0.63
135.86
+0.61
228
Choice/Select spread settled at +7.17
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
126,000
122,000
127,000
 
 

 
Feeder Cattle: 
 
Feeders closed lower as the day. The opening was lower due to the bearish cattle on feed report, but prices recovered quickly along with live cattle. Financial markets were higher the majority of the day lending support. However, grain prices were higher keeping some pressure on the feeder market. Futures continue to hold steady above $100. The CME index is providing support. August futures expire 8/27, yet feeder cattle futures remain mostly flat across the different contract months. 
 
Lean Hogs: 
 
Direct hog markets were lower with the IA/So.MN direct market at $46.34 down .03; Western cornbelt $46.56 down .24; Eastern cornbelt $43.98 down .59; and the National average at $45.60 down .45
 
Pork Carcass Cutout Values
 
 
Loads
53.86
+0.07
33.3
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
421,000
430,000
432,000
 
 
 
  • Pork cutout; loins -0.43, hams -.01 (49.06)
 
Lean hogs closed sharply lower on the day. Hogs opened higher, yet began to quickly sell off. Hog futures reacted the opposite of today’s cattle trade. The initial higher open was due to Friday’s strong pork cutout, but the sell off seems to be related to pork production and the consecutive gains we saw to finish the week. To end last week hog futures saw short covering as futures ended higher and open interest decreased. 
 
The sentiment is changing in the hog market, yet seasonal patterns suggest that prices could still move lower. This trend may be different this year with the extremely large break already experienced in hog prices. In order for prices to continue to move higher, demand needs to increase and show that the huge supply is being used. Pork production has been extremely large with the slaughter numbers and heavy weights. Packer margins are key and need to remain in the black, weights will continue to run above year ago heading into late fall, 2.2 million weekly slaughter will likely continue; will the product market be able to clear this production at the current cut out. It appears that October and December futures are eliminating the discount to cash index, but gains beyond this level will still remain selling opportunities for now. Gains could extend to $50, but will meet stiff resistance with the CME index at 49.22.
 
 
 
 
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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.