The Livestock Report
by Robert Short
HOGS: (week ending 08/28/10)
9/1/2010
Weekly Statistics
I. Pork Product (wholesale)
a. Loins 135
i. Last week 150
ii. Last year 85
b. Butts 95
i. Last week 108
ii. Last year 74
c. Hams 82
i. Last week 81
ii. Last year 65
d. Bellies (bacon) 150
i. Last week 150
ii. Last year 64
II. Cash Hogs (Friday close)
a. Peoria $55.00
i. Last week $55.00
ii. Last year $27.00
b. Zumbrota $56.00 (St. Paul)
i. Last week $54.00
ii. Last year $30.00
III. Lean Hog Index
a. 8437
i. Last week 8378
ii. Last year 4856
IV. Pork Price (13 cut retail average)
a. $2.42
i. Last week $2.34
ii. Last year $2.11
V. Packer Operating Margin (5-day average)
a. +$25.01
i. Last week +$20.09
ii. Last year +$15.36
VI. Weekly Pork Production (millions of pounds)
a. 421.9
i. Last week 415.6
ii. Last year 441.4
VII. October Lean Hog Premium/Discount to Lean-Hog-Index
a. -954
i. Last week -658
ii. Last year -49
October lean hog futures closed at 7482 – a loss of 238 points ($952.00). December lean hog futures were down 150 points at 7257. February futures closed down 105 points at 7507.
Open interest was up 6349 contracts to 219,942.
Average daily volume was 23,000 contracts. This was 7.7% below the previous week and 10% under the same week last year.
As of 08/24/10, speculative funds increased their net-longs by 8154 contracts (futures-only). This group is now net-long 32,754 contracts.
Commercial accounts increased net-shorts by 6319 contracts. They are now a net-short 18,351.
Managed money accounts (futures/only) increased longs by 8429 contracts. Managed money (futures/options) decreased longs by 4934 contracts. This group is now net-long 48,468 and 41,285 contracts, respectively.
Index funds increased net-longs by 863 contracts. This group is now net-long 96,073.
Non-reportable accounts increased their net-shorts (futures-only) by 1835 contracts now net-short 14,403.
It appears hog weights have bottomed one to two weeks sooner than average. A weight of 265.6 pounds the week ending August 14th compares to the five-year average of 262.0 pounds and last year’s weight of 263.1 pounds. This heavier weight combined with August slaughter down over 7% (U.S.D.A. was looking for 4 ½% -5% decline) has traders worried that we may have backed-up August slaughter on excessive heat slowing weight gain. Trader’s worry cooler fall weather will allow pigs to gain weight at a quicker pace resulting in larger than expected fall slaughter.
By this past Tuesday, the wholesale pork composite index reached 96.74 per hundred weight. This is an all time high eclipsing the previous August high made in 2008 as China was buying pork for their summer Olympics.
One friendly piece of news for the week was U.S.D.A. revising downward the consumer-price-index on food by 1%. The U.S.D.A. now says the food index for 2011 will increase just .5% to 1.5% and is the smallest increase since 1992. The reason for the 1% decrease is based on the U.S. economy has failed to pick-up-steam.
Traders worried about backed-up August slaughter hogs (7% decline in slaughter and heavier than normal seasonal low in weights) have taken to the sell side by being short October futures or short October/long April on a spread basis. We always have a psychological give-up in futures going into any major holiday period as traders feel holiday buying has pushed prices to levels that will need to correct on the down-side before new retail demand will surface. The Labor Day holiday is the worst of all holidays to hold wholesale prices as cooler fall weather allows quicker hog weight gains resulting in larger seasonal slaughter. This increase in fall slaughter usually gives a 20% to 25% decrease in the lean-hog-index, now at 8292, by late fourth quarter 2010. This should put the index in the mid 6000’s putting December hog futures, now 7310, to high for the expected fourth quarter low.
We re-sold October and/or December futures this week to take advantage of the normal seasonal and psychological break in front of Labor Day. We should look to sell on rallies-only as this year futures are already more than double their normal discount to the hog-index.
There has been some last minute talk of retailers canceling previously ordered pork as they are afraid to pass the record high wholesale prices to their customers. With their margins tight they do not want to absorb this increase.
CATTLE: (week ending 08/28/2010)
Weekly Statistics
I. Cash Cattle
a. Texas/Oklahoma $99.50 (U.S. dollars per 100 pounds)
i. Last week $100.00
ii. Last year $85.00
b. Nebraska $155.00
i. Last week $155.00
ii. Last year $132.00
II. Boxed Beef (value reflects US dollars per 100 pounds)
a. Choice $163.86
i. Last week $161.77
ii. Last year $143.55
b. Select $157.56
i. Last week $154.63
ii. Last year $135.88
III. Hide and Offal
a. 1085
i. Last week 1086
ii. Last year 944
IV. Retail Beef Price (15-cut average)
a. $3.96
i. Last week $3.73
ii. Last year $3.54
V. Beef Packer Operating Margin (Friday close)
a. +$20.00
i. Last week +$23.00
ii. Last year +$40.10
VI. October Cattle Futures Premium/Discount to Panhandle Cash Cattle
a. -$1.40
i. Last week -$0.75
ii. Last year +$2.70
VII. Weekly Beef Production (millions of pounds)
a. 525.3
i. Last week 515.8
ii. Last year 517.8
VIII. Weekly Cattle Slaughter
a. 678,000
i. Last week 667,000
ii. Last year 658,000
August cattle futures closed the week at 9805 – down 155 points ($620.00). October closed with a loss of 115 points closing at 9810. Twenty points higher for December at 100.75.
Open interest increased 8717 contracts to 348,887. Open
interest is now up 10.7% from 315,012 on July 10th and 6.7% under May 1st highs of 373,879 contracts
Average daily volume was 40,000 contracts 33% over the previous week and 25% over this same week last year. A market going higher on increasing volume and open interest continues to advance.
Speculative funds added 15,153 (futures-only) contracts to their net-longs now at 101,803.
Commercial accounts added 11,916 contracts (futures-only) to their net-shorts – now at 63,348.
Managed money accounts added 7467 contracts to their net-longs – now at 118,098.
Index funds added 1779 contracts to their net-longs – now at 133,474.
Non-reportable position holders added a small 3237 contracts to their net-shorts – now at 38,455.
Cattle futures had a small “overbought” technical correction in sympathy with a 240 point break in hog futures. This week and next week are usually down weeks as traders know Labor Day business is “booked” and over, leaving the next move in cash cattle and “boxed-beef” lower. You must go back to 2005 to find a time that October cattle futures rallied the first two weeks of September.
On the “plus” side for the week beef export sales were 12,000 metric tonnes against a four week of 10,925 metric tones. Year-to-date beef export sales are 448,700 metric tonnes 31% over last year. One addition factor in favor of beef going into the fall being wholesale beef is 15% over last year against wholesale pork that is 80% over last year. Cattle bulls are hoping fall’s cooler temperatures, following a hot summer, will encourage more family cookouts thereby supporting near term cash cattle and boxed-beef.
In spite of aggressive fund buying floor traders believe a weak housing market, poor employment numbers, the threat of a double dip recession and “high” beef pricing will give us a sell-off into the fall.
We talked last week of the normal seasonal summer low to fourth quarter high being 11% to 13%. This would put November-December cattle pricing between $101.00 and $103.00. If, with hog help, we can break December cattle futures into the $9600-9850 area we would be a buyer looking for $101.00 to $102.00 to offset.
It is time to take profit on cattle/hog spreads as cattle have gained 902 points in the October spread, 740 points in the December spread and 500 points in the February 2011 spread.
Robert Short
PFGBEST Research Team
rshort@pfgbest.com
HOGS: (week ending 08/21/10)
8/25/2010
Weekly Statistics
I. Pork Product (wholesale)
a. Loins 150
i. Last week 140
ii. Last year 88
b. Butts 108
i. Last week 102
ii. Last year 69
c. Hams 81
i. Last week 80
ii. Last year 55
d. Bellies (bacon) 150
i. Last week 145
ii. Last year 62
II. Cash Hogs (Friday close)
a. Peoria $55.00
i. Last week $54.00
ii. Last year $25.00
b. Zumbrota $54.00 (St. Paul)
i. Last week $53.00
ii. Last year $28.00
III. Lean Hog Index
a. 8378
i. Last week 8292
ii. Last year 4932
IV. Pork Price (13 cut retail average)
a. $2.34
i. Last week $2.34
ii. Last year $2.08
V. Packer Operating Margin
a. +$24.24
i. Last week +$18.90
ii. Last year +$8.88
VI. Weekly Pork Production (millions of pounds)
a. 415.6
i. Last week 413.2
ii. Last year 447.3
VII. October Lean Hog Premium/Discount to Lean-Hog-Index
a. -658
i. Last week -827
ii. Last year -147
October lean hog futures closed at 7720 – a gain of 255 points ($1020.00). December closed at 7407 up 82 points. February futures closed 7677 for a weekly gain of 72 points.
Open interest was up 7909 contracts for a total of 213,593.
Average daily volume was 26,000 contracts. This was 8% over the previous week and 13% over the same week last year.
As of 08/17/10, speculative funds reduced their net-longs by 4206 contracts. Adding options finds this group down net-longs by 5089 contracts. This group is now net-long 24,600 and 39,662 contracts, respectively.
Commercial accounts decreased net-shorts by 3550 (futures-only) and reduced futures/options by 3889 positions. This group is now net-short 12,032 contracts and 24,462 contracts.
Managed money accounts (futures/options) decreased their net-longs by 4934 contracts. This group is now a net-long 41,285 contracts.
Index traders reduced net-longs by 1969 contracts. This group is still a net-long 95,210 positions.
Non-reportable position holders lightened 656 contracts of their net-shorts and lightened 1200 net-shorts when adding options. This group is now net-short 12,568 and 15,200 contracts, respectively.
We were stopped-out of short October hogs this past week as we put over $5.53 on product taking our pork product composite to 9549 (a new high). In spite of wholesale and retail pricing being at record highs we had a last second loin and belly rally for the Labor Day holiday. In spite of putting $5.53 on pork product we moved just 295 loads of pork. This compares to 360 loads the previous week and 540 loads reported by the U.S.D.A. for this same week last year. It appears this final “spurt” in pork pricing has now priced us out of doing any sizeable volume. With loins 70% over last year; butts 57% over last year; hams 47% over last year; bellies 242% over last years price level at wholesale with record retail pricing our normal seasonal decline of 20-25% in the lean-hog-index should be just around the corner.
Friday’s cold storage report put total pork stocks at 391.4 million pounds. This was 5.5 million pounds more than the average analyst guess but still the lowest July stocks since 2004. In addition, we have been harvesting 5-7% less hogs than last year based on the June pig crop 50-119 pound weight group being down 5%. This combination of light pork stocks and reduced slaughter could keep pork product “firm” for the next 5-8 days.
As the heat of summer gives way to cooler fall temperatures hog weight gain will increase a long with increasing slaughter numbers from the under 50lb weight group (June pig crop). This combination of larger supply and “sky high” wholesale /retail pricing limiting demand should give a lean hog index in the low to mid 6000 area by November. December futures at 7400 appear overpriced at this time.
Floor traders getting “blown-out” on this week’s rally are now short October hogs and long April hogs. This group will look to get “shorter” October and/or December futures over the next week.
It is seldom, if ever, that we put over $5.00 on pork product in any week while putting $5.00 to $7.00 on cash cattle. This seldom seen tandem event pushed hog and cattle futures to extreme weekly advances.
Look to re-enter the short side of October and/or December futures on any 50 point to 100 point rally from Friday’s close. Use a 150 point “buy-stop” for protection.
CATTLE: (week ending 08/21/2010)
Weekly Statistics:
I. Cash Cattle
a. Texas/Oklahoma $100.00 (U.S. dollars per 100 pounds)
i. Last week $95.00
ii. Last year $83.50
b. Nebraska $155.00
i. Last week $150.00
ii. Last year $132.00
II. Boxed Beef (value reflects US dollars per 100 pounds)
a. Choice $161.77
i. Last week $154.56
ii. Last year $142.40
b. Select $154.63
i. Last week $147.31
ii. Last year $135.25
III. Hide and Offal
a. $10.86
i. Last week $10.80
ii. Last year $9.31
IV. Retail Beef Price (15-cut average)
a. $3.73
i. Last week $4.00
ii. Last year $3.79
V. Beef Packer Operating Margin (Friday close)
a. +$23.00
i. Last week +$15.95
ii. Last year +$49.20
VI. October Cattle Futures Premium/Discount to Panhandle Cash Cattle
a. -$0.75
i. Last week +$0.70
ii. Last year +$5.10
VII. Weekly Beef Production (millions of pounds)
a. 515.8
i. Last week 495.5
ii. Last year 518.2
VIII. Weekly Cattle Slaughter
a. 667,000
i. Last week 643,000
ii. Last year 658,000
August cattle futures closed at 9960 – a gain of 528 points ($2112.00). October closed with a gain of 193 points at 9925. December futures closed 100.55 for a gain of 323 points.
Open interest increased 5967 contracts to 340,170.
Average daily volume was 30,000 contracts down 9% from the previous week’s 33,000 – but 30% over this same week last year.
Speculative funds added 921 contracts to their net-longs. Adding options finds this group adding 1940 positions. Speculative funds are now net long 86,650 and 115,824 contracts, respectively.
Commercial accounts added a very small 203 contracts to their net-shorts – now 51,432. Commercial accounts futures/options added 835 net-shorts – now at 73,881.
Managed money accounts decreased net-longs (futures/options) by 330 contracts – now net-long 125,281.
Index funds decreased their net-longs by 1206 contracts. Index funds are still net-long 131,695 positions.
Non-reportable position holders added to net-shorts by 718 contracts. Adding options finds this group adding 1105 contracts to their net-shorts. This group is now net-short 35,218 and 41,943 contracts, respectively.
A surprise $5.00 up in cash cattle caught floor traders by surprise with a corresponding 500 point short-covering rally in futures. Most traders attributed the strong cash cattle rally to “boxed-beef” prices increasing $7.21 for the week on “choice” and $7.32 on select. While it is not usual for boxed-beef and cash cattle to advance in front of Labor Day business, a rally of this size is seldom seen. Exceptionally current feedlot population and a good packer operating margin did a lot to help give the $5.00 increase.
The number of cattle offered this coming week may be smaller as cattle carry-over was quite small. Feedlot operators sold everything possible as profits are approaching $90.00 head. This smaller show-list should keep cash cattle no worse than steady this coming week.
It appears $90.00-$91.00, occurring in June, was our seasonal summer low. Our normal summer low to fourth quarter high is 11% to 13%. This would put November-December cattle pricing between $101.00 and $103.00. Seasonal improved beef usage and tighter fourth quarter supplies should help keep cattle prices firm going forward.
Monthly beef cold-storage-stocks at 388.3 million pounds were 3.7% over June and 13% under last year. This number was close to analyst’s estimates and therefore deemed a non-market mover.
Friday’s cattle-on-feed data with placements 94% of last year; marketings 98% of last year and on-feed at 102% of last year was within analyst estimates and, like the monthly-cold-storage, deemed a non-market mover.
If long August cattle/short October cattle from our missive of several weeks ago – take profits. August has gained 380 points against October over the last eleven days.
I have no near term opinion on trading cattle futures. We should have several weeks of boxed-beef weakness (Labor Day business over), but it is tuff to sell October futures as we do not have our normal 400-600 point premium to cash cattle.
Robert Short
PFGBEST Research Team
rshort@pfgbest.com
HOGS AND CATTLE: (week ending 08/14/10)
8/16/2010
Weekly Statistics
I must be out of the office this coming week.
Hogs: We should be short a second unit of October hogs as they did rally into the 7500-7600 area. This week’s product rally for the upcoming Labor Day holiday will be over by mid-week of this coming week. Local traders will anticipate product top by selling futures as they will look for our normal decline in late summer – early fall cash hog prices. Use 175 point buy-stop for protection.
Cattle: We talked last week of buying August cattle futures against selling October futures on a spread. The spread did make 198 points ($792.00) for the week. With August futures still under cash and no deliveries the spread should continue. Please remember August cattle futures go off the “board” at the end of this month. If October futures were at their normal 400-600 point premium to “panhandle” cash we could add to this spread on any one or two day correction. As we closed October cattle futures “at cash” it makes it to tough to add. If August should get more than 280 points under October liquidate spread
Robert Short
PFGBEST Research Team
rshort@pfgbest.com
There is a 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 authorizing such transaction.