Reaction to COF report

Published on: 16:21PM Sep 22, 2008
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Live Cattle
Feeder Cattle
Lean Hogs
Live Cattle: 
  • COF Friday: On feed 97.0 (estimate 97.9), placed 97.3 (100.2), marketed 91.2 (90.3)
  • Placements were lower than expected causing a bullish reaction in futures. This was seen by the rally in February and April
Today’s Box Beef reported choice 159.55 Dn .25; Select 151.88 Dn 1.20; Volume was 309 loads; Choice/Select settled 7.66 up .95; slaughter 129,000; (128,000) 129,000 yr ago.
Live cattle settled higher today on a friendly cattle on feed report from Friday afternoon and a general commodity-buying theme. Buyers came early and were more focused on February and April. Volume was moderate to active. We expect higher cattle for this week on account of improving news and a residual reaction from the COF report. The slaughter was at 129,000, which is also a bullish kill for a Monday. Cash trade will not develop this early in the week, but there are some positive indications. Last week packers were still buying cattle on Friday at mostly steady money ($99) and we have had continued large slaughter. The COF has provided a positive tone to the market.
Looking Ahead: The cash basis should begin to tighten as packers work through the remaining Sept. contract cattle this week; futures are indicating live prices should firm. We have yet to see cash trade over $100. Given that there are still concerns that futures carries premiums over cash, economic concerns for high priced beef, and a possible overreaction to the COF report we could see a setback midweek. This would be a good opportunity to buy cattle that may be firmer by week’s end.
Boxed Beef Cutout Values
Choice/Select spread settled at 7.66 +$0.90
Feeder Cattle: 
Feeder Cattle traded roughly $1 higher for the day, except spot month September. Today’s positive attitude was fueled by Friday’s COF report and spillover buying from strength in live cattle futures. Feeder cattle open interest finally increased today.   September Feeder Cattle closed lower while speculators were selling out of September and buying October and November. CME index continues to weaken. CME index closed at 108.43 down –0.85 and narrowing the gap between futures versus cash and still remains premium to futures. September expires Thursday. Even with corn turning higher, we believe the biggest impact on feeder prices will be live cattle. Therefore, look to be buying breaks this week.
Lean Hogs: 
IA/So.MN negotiated market at 69.83 up 1.02 (59.00-73.00); Western Cornbelt 69.94 up 1.16 (59.00-73.00), Eastern Cornbelt 65.38 Dn .57; (60.00-71.00) National average 68.87 up 1.16. Pork carcass cutout 75.86 Dn .80 with 64.5 loads of dressed pork sold.
·        Cold Storage released: Total pork in storage = 5.3% higher than last year
·        Quarterly Pig Crop released Friday Sept 26th
Lean hogs closed higher on the day to start the week. Volume was moderate on account of some liquidation in October. It appears AIG is finished with their liquidation. The cold storage continues to show extremely large volume in storage, but do show a month-to-month decline. This reduction may be the bigger story given that slaughter numbers have been large. We will continue to watch the dollar for ideas towards pork export indicators. Today’s slaughter 435,000 (429,000); 421,000 yr ago and is certainly a strong Monday number. Hogs have been influenced by seasonal fundamentals and despite a weaker cutout, futures should catch another rally before the end of the week on account of seasonal business in the cash market. This is the week when hams and bellies are accumulated, smoked and stored for the holidays. The cutout settled at 75.86 down 0.80 and we expect cutout to continue lower over the next week.

Looking Ahead:Producers remain current ahead of the trade “experts” painting a negative forth and first quarter 09 production picture. We look for Sept Pig crop report to reflect strong production in the 4th quarter, Jan and Feb. Smaller Canadian imports and higher sow slaughter should reflect a 1-3% reduction for April forward. Look for Oct futures to lose some of its premium to Dec and Feb 09 this week
Pork Carcass Cutout Values
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