The Livestock Report
by Robert Short
Monday 9:40AM 7/9/12
Pork product continues to work its way lower as July 4th business is finished. Last week we lost a rather large $5.30 on wholesale pork and the previous week we lost $5.38 on product. This two week decline of over $10.00 is about as big a decline as we ever see. The problem at the present time is a fairly current producer inventory of market ready hogs. This is keeping the current cash hog market from having much of a selloff, and with product sharply lower the last several weeks, pork packer operating margins are over $22.00/head negative and at record losses. Last year, at this time, pork packer operating margins were a positive $3.33/hd..
Traders are fully aware of the 2-3 weeks pork product selloff that takes place after July 4th business has been completed and this was the single biggest reason for August hog futures to close 145 points lower for the week. The present problem going forward is that August futures have a rather large 736 point discount to the lean-hog-index (100.66) and this is keeping traders from wanting to seriously attack the short side of August. With a tight near term supply of market ready hogs it is going to be tough to take a lot out of the cash hog market over the next several weeks. This will probably keep the present downside correction to no more than 250-400 points. In addition, hog weights are staying on the light side as extreme summer heat is limiting weight gains.
Spread trades will be the biggest focus this week as corn continues higher on lack of moisture. Most traders will be buying December and back hog futures against selling August as feed costs escalate. There will some additional selling of August against buying of July as July went home last Friday with a 444 points discount to the lean index and this must narrow by July’s last trading day next Monday.
If you are short August futures below 9475 you should look to take profits somewhere in the 9100-9350 area. Unless we see a good break in the cash hog market we will not be able to get a sizeable break in the lean-hog-index and with August futures at the present 736 point discount there could be little on the down side this week. Spread pressure may keep August on the defensive, but a two week wholesale pork product break of over $10.00 may see near term product weakness decline.
At this time do not turn an August profit into a loss.
We have priced wholesale beef out of retailer interest. Choice boxed beef was $1.13 lower Friday and down $2.01 for the week against being $0.59 higher for this week last year. Select boxed beef was a large $3.38 lower for the week being $1.91 higher last year.
The biggest thing that shows beef business is seasonally slowing is daily/ weekly volume. U.S.D.A. date for Friday morning showed wholesale beef loads were the lightest of the year at 74 loads and weekly total boxed beef volume of 797 loads was over 14% less than the previous week, 25% less than last year and 30% less than this same week in 2010.
Small volumes of cash cattle traded $1.00 higher for the week with Southern Plains at $117.00 and Nebraska carcass at $186.00-$188.00. As of 2PM Friday there were no cash cattle sales in Nebraska. Most traders believe beef packers are finding near term feedlot market ready cattle to be tight as excessive heat has limited weight gains and in many cases is finding cattle losing weight the last few weeks. There is constant talk of feedlots moving light weight cattle to market as corn prices go over $7.00 per bushel, but that does not appear to be the case last week.
Like hog futures, we will see a lot of traders buying December and back futures against selling August/October this week as long as corn continues higher. August is a easy short side of these spreads as July is never a good demand month for beef (heat brings less outdoor grilling) and back month cattle futures are an easy buy as traders thing less cattle will be placed into feedlots in the coming months as corn continues marching higher.
We wanted to add a second short unit to August shorts we have been in from the 118.00-119.50 area, but cash cattle trading an unexpected $1.00 higher last week will keep this on the back burner for the moment.
You should liquidate this trade should August cattle futures trade over 122.62 for more than two hours.
Substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authoriz
PFGBEST Research Team