Cattle lower on basis adjustments- HOGS lower as production increases

Published on: 14:19PM Dec 10, 2010

 

CME Feeder Cattle
CME Lean Hogs
Dec
100.95
-0.85
Jan
118.17
+0.10
Dec
69.45
+0.02
Feb
103.95
-0.67
Mch
118.65
+0.22
Feb
75.15
-0.75
Apr
107.30
-0.67
Apr
119.37
-0.02
Apr
79.00
-0.82
 
Index
118.09
-0.14
Index
68.44
+0.04
 
 
 
 
Live Cattle:
USDA S&D pegs corn ending stocks @ 832 million bushels
TX 101.00 Est. volume 16,000 hd
Wkly Cash trade est. volume 84,000
 
Oct Export data up 19.5%;@ 65,519.8 mmt vs. 58008 lm; 54822.1 ly
 
Midday beef Ch 163.49 (-0.04); Sel 153.09 (-0.53) 112 lds
 
 
 
Live Cattle:Cattle settle lower, basis continues to adjust; TX traded today @ 101.00 on light volume. Volume for the wk is est. @ 84,000 hd. Box beef drifted lower to 163.74 down   -0.26 on the wk. Holiday type trade will remain dominate next week. Holiday beef trade should be wrapping up this week lending pressure to box prices for next week. Seasonally out-front sales should be lackluster until mid Jan. Board feeding margins have taken a hit this month and we would look for this to correct relatively soon. Packer inventories are tight, this week's volume was impressive, however without slower chain speed next week month end inventories will be very tight as we have seen all fall.
Open interest thurs - 1144 contracts, @ 340732
 
Looking Ahead:For the moment seasonal basis and softer tone in demand should allow futures to set back to 103.50(Feb) and 106.50 area Apr. This week's dress and live trade indicates 101.25-60 Dec LC, packer inventory shrinking. Next week's chain speed should be slower against the Christmas the following week. This also means packer activity will be light, Bottom line, packers will finish out next week with 2 full weeks of slaughter before Jan contracts are available. Next Friday COF report has early indications on feed up 1-3%; placements up 2% and mrkting up 6-10%. We believe the placement number has room for error given the market disruption Eastern Livestock presented. Board feeding margins have been rocked this month, but now look to be in a position to correct, this would lend support to the April fats on back. The next few weeks seasonal trends in exports, forward sales, and domestic needs all take a softer step and will hopefully give us a chance to buy the break.
 
USDA Boxed Beef Cutout Values
Choice
Select
Loads
163.74
+0.21
152.57
-1.05
224
Choice/Select spread @ 11.17
Drop Cr**
12.29 (+0.01)
Slaughter
Last wk
Yr Ago
WTD
Yr Ago
130,000
132,000
121,000
674,000
617,000
 
** Basis Steer and Heifers
* Prior days Information
 
FEEDER CATTLE:
 
Feeding Margins remain Negative
USDA Dec S&D report pegs 2010/2011 ending stocks @ 832 vs aver 803
 
 
Feeders settled mixed as board feeding margins remain under pressure. Southern plains weather remains dry, talk over grazing conditions have surfaced, which will need to be closely monitored. We continue to believe board feeling margins will flip leaving retain ownership the  growers best hedge.  
 
* Prior days Information
 
 
USDA Pork Carcass Cutout Values
Load vol.
Cutout
78.50
-0.03
25.75
Slaughter
Wk Ago
Yr Ago
WTD
Yr ago
419,000
421,000
428,000
2257,000
2233,000
National Live Trade Wtd. Px
Net*
Vol.
National
66.95
+0.15
10086
IA/Minn
68.10
+0.06
5524
W. Cornbelt
67.89
+0.03
6104
E. Cornbelt
65.83
+0.04
3782
 
* net is based upon HG 200 report "National Direct Prior Day"
 
Lean Hogs
 
Dec expires Tuesday 12/14/10
 
USDA Dec S&D report pegs 2010/2011 ending stocks @ 832 vs aver 803
Cutout finishes the wk up 1.38; led by loins up 7.02
 
 
 
Lean Hogs-settled mixed with Dec holding this week's gains, Feb on back struggled as seasonal concerns over product trade, and "sloppy" Oct export data weighted on the demand. As direct trade pushes higher ahead of expiration Tuesday Dec held; a test to 70.00 level is certainly possible.  Packer needs are covered, and Sat slaughter remains supportive to cash prices as packers approach Dec expiration. Production remains very strong, slaughter is expected to remain aggressive through next week. Actual hog weights remain seasonally high, for the week of 11/27 B&G @ 206.0. and may be a critical factor against Jan demand.  Today's export data indicated better month over month exports @ 98.8 mmt. Noted sales to mainland China are encouraging, however yr over yr exports were down 12.2% which is disappointing.
 
Looking Ahead: Cash trade remains supportive to Dec while open interest against the 70 strike for puts and call leaves the market a nice target with just two days to expiration. Today's export data provided mixed results. Shipments to mainland China are improving, total exports were down 12.2% yr over yr; with a 7.4% month over month increase. October exports as a % of Oct productions pencils in on the low side, which is similar to the fall of 2008 post Olympic markets. Weekly pork production has been very strong and one would expect to see product values loosen up. Cattle vs. Hogs closed just below the 40 day MA support which holds an interesting look at the long term trends. While Dec expires Tuesday, the balance of the market will begin to focus on pork production, expected production in Jan vs. demand can 75.00 cwt support 2 billion pounds of production?
 
 
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Paul Nelson
 
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Chicago, IL 60604
 
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