E Hedger Livestock Commentary 4/14/10

Published on: 16:18PM Apr 14, 2010
Live Cattle
Feeder Cattle
Lean Hogs
LCM0
92.95
-0.525
FCJ0
111.85
-1.45
LHJ0
77.425
+0.675
LCQ0
91.55
-0.55
FCK0
112.20
-1.40
LHM0
84.95
-0.525
LCV0
94.525
-0.475
FCQ0
114.125
-1.10
LHN0
84.725
-0.175
 
Index
113.81
 
Index
76.40
 
 
 
Live Cattle: 
 
Panhandle trades $98-99 live; NE trades 161 dressed
 
Live cattle closed lower on the day. Futures continued this week’s lower trade despite supportive outside markets showing higher energies, grains, and a lower dollar. Profit taking continues to be a major factor and confirmation of the $1 lower trade in Texas has left many believing that cash and cutout levels have peaked for now. Further downside can still be expected, but buyers should emerge near trends lines and standard retracement levels. April has not seen any deliveries and the last trading day is 4/30. Historically, basis levels are at their best now into May and then back off going into the summer. By June basis levels are typically negative $1-2. Midday boxed beef was mixed with Choice at 166.64 down .28 and Select 164.89 up .39.
 
Cattle feeders can consider buying live cattle puts and selling corn puts. The corn puts will either 1. Pay for your cattle puts or 2. Provide even cheaper corn to feed this summer.
 
August: Buy 88/82 put spread for $1.50 or better. More aggressive hedgers buy a 92 put and sell a 100 call for $2 or better. Keep scaling into these positions.
 
 
 
Boxed Beef Cutout Values
Choice
Select
Loads
166.74
-0.18
164.85
+0.35
218
Choice/Select spread settled at +1.89
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
122,000
128,000
123,000
373,000
362,000

 
 
Feeder Cattle: 
 
Feeders closed sharply lower on the day. This was the second consecutive day of triple digit losses.  Prices appear to be at a critical area technically. May feeder resistance will be $114-114.25. Next support is the 20-day moving average at 111.50. A 38% retracement would place May at 108, which seems to be too sharp of a break from current levels. However, a move to $110-111 should not be ruled out if corn works higher and fed cattle prices cheapen even further. The losses were accelerated by corn trading 10 cents higher. Yet, corn backed off from the highs into the close causing a small amount of buying in afterhours Globex feeders. 
 
Demand for cash feeders remains good, but the supply at some auctions was reported as heavy. Given the fact that prices are near contract highs expect plenty of volatility this week. Hold our short May feeders at $113.50-114 and place buy stops at 114.25 or consider exiting if May closes above this level.
 
 
Lean Hogs: 
 
Direct hog markets were higher with the IA/So.MN direct market at $77.28 up 2.90; Western cornbelt $76.44 up 2.59; Eastern cornbelt $74.24 up .55; and the National average at $75.64 up 1.87
 
Pork cutout: loin +1.05, hams +.89
IA/MN weekly hog weights 270.2 lbs. vs. 270.2 wk ago and 269.9 wk ago
 
Lean hogs closed lower on the day, except for April. Contract highs acted as resistance for lean hog futures, which appeared to be consolidating after yesterday’s strong market. This week’s optimism was linked to the USDA announcement that they may have found a solution to the Russian poultry ban.  This is supportive to hogs because of less competition for pork on the domestic market. However, not many details were disclosed. The rally put June right back near contract highs going into tomorrow.
 
The cutout is at its highest level in over a year. This is likely due to slaughter reductions and strength in the cutout prices. The chart for June hogs shows a gap higher from 82.15, and this level will act as support. This is immediately following the hogs and pigs report.
 
April expires on the 15th. Packer demand has been strong as pork prices have pushed higher heading into the spring. Also, the market is still trading in the aftermath of the bullish hogs and pigs report. This outlook projected fewer hogs than expected at a time when pork demand is getting firmer.
 
 
 
Pork Carcass Cutout Values
 
 
Loads
82.44
+1.17
75.75
Slaughter
Wk Ago
Yr Ago
WTD
Yr Ago
406,000
413,000
426,000
1.221
1.143
 
 
 
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