Hogs Higher/ USDA cold storage bearish/ Cattle Higher- USDA COF placements higher than expected

Published on: 16:59PM Oct 22, 2010

 

CME Feeder Cattle
CME Lean Hogs
Oct
102.20
+0.67
Oct
111.20
+0.50
Dec
70.65
+1.32
Dec
101.70
+0.45
Nov
112.55
+0.90
Feb
75.92
+1.72
Feb
104.17
+0.50
Jan
112.85
+0.85
Apr
79.95
+1.55
 
Index
110.07
+0.51
Index
67.50
-0.95
 
Cattle On Feed  USDA Actual Oct Actual  Aver Guess Act- aver guess Oct 2010 Est based on aver Est Range 10/1/2009
On Feed 103% 10779 102.8% 11.728 10767.3 102.1-103.6 10474
Placed 103% 2462 102.1% 23.852 2438.1 98.6-105.2 2388
Marketed 102% 1802 102.0% 21.08 1780.9 100.8-102.5 1746
 

Live Cattle:

 
COF Neutral to bearish
 
New Contract high in Oct Cattle 102.35 High close 102.20
 
Midday box beef 160.98 (+0.37) 155.05 (+1.08) 84 lds
 
No deliveries, partly through 10/4/2010 as of 10/21/10
 
 
Live Cattle: Cattle settle higher off higher midday beef and corn futures closing lower on the week.  Trade expectations for cash and futures to trade higher next week, many believe box beef prices will move higher, as well. Today's slaughter was a bit disappointing vs previous week and yr data.  wkly totals were strong and inline w/ our expectations. This afternoon's COF report further shows how producers respond to market incentives...feeding margins for Sept and first half of Oct have been positive...so placements are up. Fourth quarter production should be adequate for 640-650 / wk kills and enough to accommodate better exports and seasonal beef domestic beef demand. the surprise will be if domestic numbers improve or winter weather pushes in effecting slaughter weights. Producers are very current, slaughter performance has been poor further confirming our overall current conditions.  Product prices have adjusted to cover aggressive exports and month end retail bookings. COF report Friday afternoon will be looking for confirmation of placements. A dip in placements with our export pace can be explosive. Current wkly slaughter est. @ 640-650 are based upon past 3 months of placements.    
 
Looking Ahead: As we mentioned above, the trade is expecting better trade next wk in both cash and beef, however we believe most of the good news is built into this week's action. On feed numbers for Nov. and Dec. should be able to handle current demands. This being said, export demand is very good and any meaning full sell off's will be limited. Mid- term we look for dec and Feb to test 40 ma. once the Oct expires.  And let us not forget Chicken numbers; today's USDA Cold Storage numbers are still running above yr ago, with wkly egg sets and chic placements holding 5-6% above yr age. Yes export to FSU are improving but Chicken Breast complete domestically.  Items we think we know: Exports are very strong; Growers are very current with sales; Contract numbers for Nov. are roughly the same as Oct.; Positive breakevens feeders and packers. Expectations: Exports remain strong over the coming weeks; November brings slaughter disruptions which may allow packers to manage contract numbers in the first half of the month. Pre-roll over "noise" begins next week. Retailers seasonally shift weekly bookings away from beef this may loosen the buy side pressure; Corn market remains very explosive which should keep show list up.
 
Hedge Recs:  Grower should be looking at pricing in downside protection for Dec to Feb production. Can box beef sustain 101.00 -104.00 fed cattle market?
 
 
USDA Boxed Beef Cutout Values
Choice
Select
Loads
161.42
+0.81
154.74
+0.77
165
Choice/Select spread @ 6.68
Drop Cr.
11.35 (+0.01)
Slaughter
Last wk
Yr Ago
WTD
Yr Ago
114,000
119,000
118,000
662,000
645,000
 
 
* Prior days Information
 

FEEDER CATTLE:

 
Precip forecasted for TX and sw KS
 
Feeders settled higher as rain falls across most of the winter wheat belt and lower corn for the week. Improving pasture conditions, Peak in fall feeder run, and aggressive marketing's have many commercial yards looking for replacement cattle. Look for feeders to hold technical support levels baring any explosion in corn prices in Nov feeders approaching expiration; Jan's ability to hold higher money maybe hampered by the calendar, winter weather, and smaller runs and lack of interest (similar to the after last May's expirations). Mch forward should continue to adjust for tight spring run and better commercial demand.
 
* Prior days Information
 
 
USDA Pork Carcass Cutout Values
Load vol.
Cutout
76.06
-0.70
27.00
Slaughter
Wk Ago
Yr Ago
WTD
Yr ago
416,000
416,000
425,000
2346,000
2323,000
National Live Trade Wtd. Px
Net*
Vol.
National
62.23
-0.40
8815
IA/Minn
63.15
+0.65
4357
W. Cornbelt
62.92
+0.65
4938
E. Cornbelt
61.28
-1.73
3877
* net is based upon HG 200 report "National Direct Prior Day"
 

Lean Hogs

 
pork product drifts lower
 
Cold Storage report bearish 425.523  80% of ya 110% of last month
Hams 162.957 up 110% last month; 109% last yr.
 
Manage Money Decrease long position            49,346      -5,745
Managed Money Increase short position          16,238       +2,493

 

Lean Hogs- settled higher on end of week short covering. Cold storage report indicated 425.523 vs. 400.00 top end guess. wkly slaughter @ 2.3 million is very strong , however next week's market expectation has packer needs covered and week of Nov 1st bookings are building. Our point is the news is not getting worst but we will need to see positive data in live weights, tighter head counts and better exports to have prices improve over the short run. More work is still needed! Futures anticipated the break; Feb is indicating prices will recover...THE KEY, slaughter has to stay aggressive, weights need to stabilize, product values need to reach value to clear product and maintain strong exports. The trade continues to believe slaughter needs are covered for the remainder of Oct.

 
Looking Ahead: Though the news is not getting any worse. The  futures market will need to see confirmation in improving exports and retail demand; tighter production numbers before a true turnaround is in place. In the mean time futures will remain defensive, and rally's ought to be sold, however we are looking for a two sided trade to develop with softer cutout values. The trade will continue to focus on weights and lower product values expectations. Slaughter levels are expected to peak near Thanksgiving, however numbers are not expected to push below 2.200 per week until Christmas.
 
Cold Storage 425.523 million lbs vs. 400.000 expectations; hams were on the high end; possibly indicating weaker than expected Sept exports. Total pork production based upon USDA monthly slaughter numbers released this AM was done 6% which could have implied a cold storage number closer to the low end of the guess @ 377.000. This may be an indication of smaller than expected export for Sept. particularly to Mexico, who is very price sensitive buyer.  
 
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Paul Nelson
 
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