Livestock Market Comments

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com 

Fri., May 25, 2012 at 9:30 a.m. Central:

Hogs:

We lost another 44 cents on pork product last night and are now down $3.28 for the week against losing a large $5.78 last year. We almost always lose pork product value this week as Memorial Day business is booked no later than last week.

The lean hog index was 39 points higher yesterday and is now up 346 for the week at 8528. June hog futures are 322 lower for the week and this has taken June to a negative discount of 108 this morning.

Last Friday, June carried a premium of 540 points, but traders knew product would probably be down this week so they managed to collapse the basis by 648 points. Last year in the first four days of this week, June futures lost 304 on its basis. As psychology shifted to the negative side the basis collapsed.

As we come into the last few days of May most traders are starting to talk about the strong seasonal pork product market that shows up in June into mid-July. The present pork composite cutout value is 7820, or almost 13% under last year. The average harvest decline from this time of year into late summer is around 125,000 a week. Traders are trying to talk up the possibility that average pork pricing 13% under last year coupled with a normal harvest reduction will give us an up-trending cash hog market during the month of June. The problem will be whether we can move pork that is priced 3% over last year at retail.

In addition, July hog futures have closed higher for the month of June only one time in the last five years. The 5-year average is for July hogs to lose 279 points during June. If we had a extreme discount in July against the lean index it would look more promising, but at this time it will be tough to hold a 3- to 8-day rally.

This coming holiday week will see a harvest reduction somewhere in the 11% to 14% area from this week. This, in turn, will start trader chatter of product strength coming as near term production is curtailed. This has the possibility of keeping hog futures from going lower next week.

We have now had our pre- Memorial Day futures break with traders now looking for some sort of “read” for June. History says “don’t trust a rally.”

Weekly pork product volume of 323 loads is about the same as last week but down over 20% from last year when a $5.78 weekly product break found retail interest. So far this week, a 4-day product down of $3.28 has found little retailer interest. This does not look good for holding any rally that might show up next week.

Technical bar charts have good resistance for July hogs in the 8770 to 9015 area and with some upward momentum next week, we may be a seller assuming daily pork volume stays low. One the other hand, should pork product volume pick up next week on higher money, we could be a short-term long in the 8250 to 8350 area, assuming we can get into this area the first part of next week.

Other than this, we are on the fence after the expected break we got this week.

It still looks like new contract lows (8457) will be coming in June for July hog futures.

Cattle:

Choice beef was 19 cents higher last night and is now a rather large $3.96 higher for the week against $3.18 higher last year. In the last 30 trading days ,we have put $18.96 on choice boxed beef with a price last night of $195.56, just 2% under all-time highs.

If you are bullish cattle futures at this time, you believe wholesale prices 2% under record highs, with retail beef priced 6% over last year, will continue to see good consumer interest at a time of year that we usually see the strongest seasonal decline in wholesale beef and cash cattle.

The best that can be said for cattle at this time is that boxed beef daily/weekly volumes are staying better than expected. For the first four days of this week we moved 825 loads against 876 last week and 869 last year. It appears retailers held off on booking spring/early summer grilling needs as they thought they could buy at a later date at lower money – they watched cattle futures implode for a 10-week downside correction of over 1700 points.

This buying interest should be coming to an end sometime next week or the week after. Traders will need little prompting to get short as they all know that June is a very weak month for cattle fundamentals and futures. On the first sign of box weakness in prices and/or volume, we will see a very quick 300 lower futures market. It is possible that this selling may be starting over the next few days as the upcoming weakness is always anticipated.

The only hope for long position holders during June will be the supply side. Feedlot populations appear current in their sales and it may not be possible to get our normal 12-14% correction in cash cattle into late July or early August.

We are short June cattle from the $118 to $120 area and it was your choice several days ago to take profits as boxed beef prices and volume were staying stronger later than anticipated. If you elected to stay short, we are using a liquidation price of $123. You do need to try and stay short this market at this time. We may get some sort of rally next week on fears that a holiday harvest reduction will force product higher taking cash cattle along for the ride, but we will be sellers on any rally next week or the week after. It’s the correct trade for this time of year with wholesale prices just short of record highs. In short, negative psychology will trump any short-term friendly fundamentals.

 Happy Memorial Day Weekend.

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 res

We lost another 96 cents on pork product and are now $2.84 lower for the week against being $2.27 lower last year for the first three days of this week. Again, this is a normal pork product correction for the week in front of the Memorial Day holiday.

June hog futures are 300 points lower for the week as traders always worry about product this week and this negative thinking got a boost from Tuesday’s negative cold storage stocks for May 1^st. Most traders are now thinking product will be getting better by late next week as the upcoming holiday harvest reduction will put some sort of bid to the market no later than late next week. As traders always anticipate what may be coming, it may be tough to continue lower this coming week.

We have been talking about the rather large “basis” premium that hog futures carried last week against the normal basis for this time of year. The Tuesday before last June hog futures carried a 704 premium to the lean-hog-index (4 year average discount of 226) and last night were at a 47 point discount. This is still over the normal average for the third week of June, but the basis problem has been eliminated with this week’s selloff.

It’s tough finding many floor traders negative for next week as they believe the three day down we have just had is nothing more than the seasonal week before Memorial Day product break. Last year, next week, we lost a small 27 cents on pork product and closed June hog futures 30 points higher as they added 255 on their basis as psychology shifted to the normal thinking that pork product would have its normal rally into mid-July. This year with pork priced 3% over last year at retail (wholesale 12% under last year) that may not be the case.

June went home at 8442 with contract lows of 8292. This area will probably be the battle ground for next week trading. Should we make new contract lows next week we could see more fund selling as they have stayed net-short for the last several months.

At this time I would be a buyer of June hog futures between 8250-8350, but we will need to trade in this area and at the same time find pork product bids showing up. We’ll see. Do nothing at this time.

You want to liquidate long June hogs against short June cattle when June cattle trade 3367 premium to June hogs. Tuesday’s Cold Storage report was no help.

We have talked for many weeks about the normal seasonal for boxed beef finding their spring high in early May. This is a normal occurrence as spring/early summer grilling bookings are over. This year it appears retailers put off booking beef on the 10 week down in futures that ended the last week of April. This is normal human nature to wait and buy beef lower at a later date.

We put $1.09 on choice beef last night and are $2.86 higher for the week. Daily/weekly boxed beef volume is still decent at 630 loads, but showing some resistance to wholesale prices that are now just 2% under all time highs. Boxed beef volume for the first three days is running at 630 loads or 8.9% under last week and almost 4% under last year. While this is not a negative number, it does mean we watch boxed prices and volume next week for any clue that boxed beef is at its seasonal high.

Cash cattle were $2.00 lower yesterday at $121.00 (southern plains) as feedlots watched futures 155-175 downside correction and took lower bids for their cattle as the discount June carries to present cash allows them to cover hedged cattle and make up for taking the $2.00 lower bids.

June cattle carry a 320 discount to $121.00 cash cattle against a two year average discount of 302, so we are about where we should be for this time of year.

I would expect boxed beef prices and volume to falter sometime next week. Traders will be on the lookout for negative news as they are fully aware of the strongest negative cattle seasonal of the year.

We are short June cattle between 118-120 with the only technical exit point at 123.00. With boxed beef volume and prices staying higher longer than usual I said you could take profits yesterday if you wanted. I don’t see any immediate rush to cover as traders always worry about cash cattle prices in June. The normal seasonal is to lose 12-14% in cash cattle by late July/early August. If we use the $131.00 highs in February we are taking present $121.00 cash cattle to $112.00-$114.00. If we now start down from last week’s $124.00 cash cattle we could be on the way to $105.00-$107. In any event, it looks like a selling opportunity in the near future or to add to present short June.

We must be out of short June cattle against long June hogs should cattle stay 3367 over June hogs for more than one hour. I think we are getting out at the top, but we can’t carry a loss forever and hoping things change. You may or may not be out this morning as June cattle traded over 3367 in Tuesday’s night session, but did not trade in this area during the day session. Today it has traded over 3367 for 50 minutes and as I write this we are at 365. Be sure and be out should this spread close the day session above 3367.

1-800-280-4566

rshort@PFGBEST.com 

Wed., May 23, 2012 at 9:10 a.m. Central:

Hogs:

The monthly Cold Storage report showed 659.5 million pounds of pork in storage as of May 1. This was an in movement of over 49 million pounds when most traders were expecting 5 to 8 million. This is the second highest amount of pork in storage for any month of the year on record.

We lost a surprise $2.09 on pork product last night and are now $1.88 lower for the week against a 2-year average of being $1.55 lower. We talked last week about trader suspicion that this week always sees the end of Memorial Day pork booking and that traders usually try the short side. These two reports coming out yesterday influenced trader psychology with the net result of June hog futures being 157 lower as I write this.

We have taken 378 points out of June hogs’ extremely high basis premium this week. We went home Friday with June at a 540 premium to the lean hog index (2-year average a negative 408), and with psychology turning negative this week, we are now getting the correction.

A June hog 66% retracement of the 10-day rally is 8465, and if we close below this area, the next support is at contract low of 8292. Should product continue lower into late next week we could be making new contract lows.

Traders will worry about pork product going higher by Wednesday of next week as the Memorial Day harvest reduction should help to put a bid to loins, butt and bellies, although last year we lost a small 27 cents on pork product the week after this holiday.

Traders think what is happening now is that May hog slaughter is quite high as pork packers have export commitments. The problem comes when they must move 8 out of every 10 pounds produced domestically. Retail pork at 3% over last year is not moving all that well, apparently, so the excess is going to cold storage warehouses.

We are long June hogs against short June cattle when June cattle traded 3000 to 3200 over June hogs. Again, another report is going to make us liquidate this spread today, at a loss, as we have traded over 3367 for more than one hour on Globex, but have yet to hold this 1-hour price in pit trading. If we close over 3367 today be sure and liquidate.

Cattle:

Yesterday’s Cold Storage report put May 1 beef stocks at 517.5 million pounds. This was an increase of 14.3 million pounds against a 5-year average drawdown of 10.5 million pounds. In addition, it is the most beef in storage since November of 2006. We lost a small 31 cents on choice beef last night, but are still $1.77 higher for the week against being $3.69 higher for the first two days of this week last year.

Boxed beef volume is staying good as the 2-day total of 410 loads is 5.3% over last week and almost 13% over last year. It does appear that retailers held back from beef purchases during the 10-week correction to the downside in cattle futures. This, in turn, is keeping the normal seasonal of May boxed prices going lower a little late in starting.

We are short June cattle in the $118 to $120 area with June trading $117.67 as I write this. With boxed beef business staying good, later than usual, you may want to take a profit.  If you stay, we are still using a close over $123 to liquidate. I still look for June cattle to have their seasonal correction into late July or early August.

We are in the borderline area in our short June cattle against long June hogs. Globex trading has had June cattle trading 3367 over June hogs for more than one hour, but pit trading has not.

Be sure and be out of this spread should pit trading close with June cattle 3367 over June hogs. This is the second loss we have taken on this cattle-hog spread on outside reports.

Unfortunately, in trading commodities a little luck is always helpful but we weren’t lucky this time.

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.

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com 

Tue., May 22, 2012 at 9:55 a.m. Central:

Hogs:

Hog futures declined 70 to 150 points yesterday as traders worry that Memorial Day business bookings could be finished; this negative psychology is forcing long position holders to take profits this week. This is almost always a week where hog futures struggle to hold a rally.

We did put a small 21 cents on pork product last night and this is giving some small amount of buying this morning although hog futures will probably continue to work lower today waiting for a slightly negative monthly Cold Storage report this afternoon. Analysts look for pork stocks at the end of April to be around 618 million pounds. This would be slightly less than 1% over the previous month but 12% over May 1 stocks of last year. In addition, should pork in storage be in the 618 million pound area, it would be almost 9% above the 5-year average. This will keep the hog market from any upside move today unless outside markets should go sharply higher.

Hog harvest levels have stayed rather high the last few weeks. For the month of May, harvest levels have been running 4.5% over last year’s pace. This is making traders consider that export demand must be staying good, and in spite of poor retail demand, (retail pork 3% over last year) pork packers are continuing to push harvest levels for export business. Unfortunately, the non-export pork items are showing up in domestic cold storage warehouses as they are being priced too high for present retail interest.

At this time of year, we will be looking to buy breaks in hog futures. This is usually not the week to attempt this, but the market does have good technical bar chart support for June hogs in the 8460 to 8600 area.

We are long June hogs against short June cattle in the 3000 to 3200 area. With present decent boxed beef business (normally over by May 10) still staying good, we must liquidate this spread should June cattle trade 3367 over June hogs for more than one hour.

We put a rather large $2.09 on choice beef last night while losing 9 cents on select. This puts the choice/select spread at 821 premium choice to select. The last 2-year average spread has choice at a 538 point premium to select. This is a good indicator that loins and ribs are being bought for grilling at a slightly better pace than we had for the last two years.

 Cattle:

Choice boxed beef is now at $194.59 and just a little over two percent under this year’s high. With USDA retail scanner data for April showing beef at retail priced 6% over last year, you have to wonder how many shoppers are buying beef in spite of the 22 cents/gallon decline we have just seen in gasoline prices.

The strongest demand seasonal for the year is for wholesale beef to work lower into late July/early August. It does appear that the 10-week down in futures has keep retail buyers from pre-ordering all their expected spring/early summer grilling needs, but this last minute buying should be about over. In short, the demand side of the business should be coming to a quick end late this week or next.

Cattle feedlot supply is the major friendly thing going for cattle futures in May. Feedlots appear to be staying current in sales in spite of cattle weights being much heavier than last year. The U.S.D.A. told us we would produce 4.6% less beef this year, but so far the harvest of cattle is down 4.8% with beef production down just 3.0%. One negative to be aware of is that Texas, Kansas and Nebraska showlists increased a large 31,000 (increased 10,000 last year) animals this week for a total of 295,000 or 2.4% over this week in 2011.

We are short June cattle in the 1800 to 2000 area, and would liquidate if June goes over 2300 for more than one hour.

We are short June cattle against long June hogs when cattle traded 3000 to 3200 over June hogs. With boxed beef pricing and volume staying better than is normal for the middle of May we may have to liquidate, for a loss, should June cattle trade 3367 over June hogs for more than one hour.

Today’s monthly beef cold storage numbers should show May 1beef stocks in the 511 to 515 million area. This would be a monthly increase in the 3.5 to 7.5 million area against a 5-year average showing a average drawdown of close to 11 million pounds. This would be considered slightly unfriendly for tomorrow and probably forgotten by Thursday.

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.

 1-800-280-4566

rshort@PFGBEST.com

Monday, May 21, 2012 at 11:19 AM

We lost $1.20 on pork product Friday, but did put 93 cents on product for the week against a two year average of losing $2.14. We lost 55 points of June’s premium basis last week, but still closed with a rather large premium of 540 against the lean-hog-index (8202). The last two year average has June at a discount of 408.

We have put $5.47 on wholesale pork product over the last three weeks and this, in turn, has pork packers paying $3.00-$4.00 higher for cash hogs. Paying higher money for hogs has advanced the lean-hog-index a small 110 points over this last three week period, but still leaves hog futures with a rather large premium basis. We need to continue to feed the market daily friendly fundamentals or we will have a 150-200 point correction this week as traders always worry that upcoming Memorial Day business has now been booked.

June futures closed 212 higher last week, but daily volume from the previous week was lower by 9.2% with a decline in open interest of 10,360 contracts. This usually means a short term correction could be coming.

We want to be a buyer of June hogs on a correction this week or next assuming pork product can continue its seasonal rally that started several weeks late. There is good support for June in the 8560 area with better support showing in the 8460-8500 area. The rather large premium basis will give us nice one-two day corrections when product appears weak, but at this time of year we should see wholesale pork product working higher.

One near term negative is hog packer operating margins. We went home Friday with a negative 10.74/hd. against a 3 year average positive $3.78/hd. Putting $3.00-$4.00 on cash hogs the last several weeks, while putting $5.47 on pork product, is keeping the negative basis at about the same level. This could become price limiting in the future, but at this time of year traders are always looking to buy breaks knowing the strong pork product price rally into late June/July on what is normally a 125,000 head reduction in weekly harvest levels into summer.

We have been looking to buy June hog futures against selling June cattle in the 3000-3200 area for the last several weeks. The spread went home Friday at 3210 and with a friendly monthly Cattle-on-Feed report Friday, is now trading in the 3330 area. We talked Friday about the top side of this 200 point range being a good possibility. Thanks to the Friday report we may have a small loss. We give this trade the next two days to see what happens. Monthly reports are always a problem.

Boxed beef had their best week in the last four weeks as choice was $1.41 higher for the day and $3.41 higher for the week. Choice is now at $192.51, and about 3% under its all time high. Box volume for the week was a good 1,056 loads and was 2.5% over the previous week, but 21% less than this same week last year. Retailers watched cattle futures work over 400 points higher for the week and were influenced into covering any fill-in business for the upcoming Memorial Day business. We normally start to work lower in wholesale beef the rest of May and into late July/early August as summer grilling business has been booked.

Just as retailers were influenced by futures 400 point rally last week, beef packers were quick to pay $3.00-$4.00 higher for cash cattle. Southern Plains cattle traded in the $123.00-$124.00 area as of 2PM Friday albeit on very light volume of slightly less than 14,000 giving a small weekly total of 23,490 against last year’s weekly volume of 111,490. After 2 PM trade will be out this morning and it will be important to see if beef packers did a decent weekly volume.

Friday’s Cattle-on-Feed was on the friendly side. Placements were down almost 15% with traders expecting 12%. Feedlot sales were expected down almost 2%, but came in .4% higher. This lack of placements and better April sales has feedlot supplies .8% less than May 1^st of last year. It should be remembered that placements were just 6% under the last 5 year average and last year placements were the highest in the last nine years.

Many traders feel the over 400 point rally last week in cattle futures has built-in the friendly report. Don’t forget open interest declined over 7500 contracts as people staying long for the ten week down-side correction are now getting out on the past three week rally. June open interest has declined over 80,000 contracts (52%) over the last three week rally.

We have been waiting for the last three weeks for June futures to get into the 118.00-120.00 area and as I write this we are trading 119.87 with help from a friendly monthly Cattle-on-Feed. Let’s sell June cattle today and risk a close over 123.00. The strongest seasonal of the year should be coming this week with the added talk of Memorial Day business being finished.

We are short June cattle against long June hogs in the 3000-3200 area. We have a small loss thanks to a friendly Friday cattle report. This should be in the market and out of trader minds by tomorrow.

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.

 1-800-280-4566

rshort@PFGBEST.com

Monday, May 21, 2012 at 8:21 AM

Friday 8:45AM 5/18/12

Sorry for not posting daily research the last three days as the move to a new office caused us to lose server support.

 We talked Monday about not being short hog futures as pork product was on a good 11 day rally and that this should finally turn operating margins to the positive and this, in turn, would find

pork packers paying higher for cash hogs. Always remember that hog producers will watch a futures rally take place and tighten their daily live animal offerings in the hope for higher money at a later date.

We put 75 cents on pork product last night and are now $2.13 higher for the week. For the last 14 trading days pork product is $6.47 higher against being $3.30 higher for this same time period last year. This higher pork product is letting packers pay higher money for hogs and this, in turn, is finally seeing the lean-hog-index advance 146 for the first four days of this week to close at 8081 last night.

Hog future’s “basis” is quite high as June went home with a 661 premium against a four year discount of 305. The same for July, as it closed with a premium of 794 against a four year discount of 234. This doesn’t mean we can’t keep this rather high “basis,’” but it does make the market vulnerable to quick selloffs should product or cash falter. The one plus item as I write this is that the lean-hog-index should be close to 8400 by Tuesday. This will be close to 300 higher than last night’s 8081 and will go a long way to make traders unconcerned of a “basis’ to high.

Next week normally sees hog futures working lower as traders know Memorial Day business has been booked. The last two year average is for June hogs to close 132 points lower for this coming week.

We want no part of the short side of hog futures into the middle of June unless pork products three week rally is coming to a end. Time will tell.

The first good resistance area for June hogs is in the 8890-8960 area with stronger resistance at 9160. To get into this area next week we will need a continued up in product to keep psychology from turning bearish on Memorial Day business being finished.

We look to be a buyer of June or July futures on any upcoming breaks assuming pork product holds together into late June or early July.

We are in the technical area for buying June hogs against short June cattle that was a good winner the last time we did it. Risk 200 points from your point of entry. At present we may be able to get closer to the 3200 area as beef, like pork, is holding together in front of its most negative seasonal time of the year for boxed beef prices.

Oh, one last thing to keep in mind is that U.S.D.A scanner data for April has retail pork still 3% over last year while wholesale is more than 14% under 2011 pricing.

 Choice boxed beef was a small 12 cents higher last night, but is up $2.00 for the week against being up just 80 cents last year and down $1.61 for this week in 2010. This week’s volume of 876 loads is almost 7% over last week, but 20% under last year. For the month of May choice boxed beef is a small 83 cents higher, but much better than last year when choice was $6.86 lower for the month. Most of the last three week strength in beef is coming from the early March downside correction that came about as traders worried high gasoline prices would take consumer purchasing dollars and leave little for high priced beef. This ten week correction saw choice boxed beef in the $177.00 area in mid-April. We now find choice prices in the $191.00 area as retailers have been booking spring/early summer grilling needs. It appears we are extending the normal boxed beef higher pricing an addition one or two weeks. We should now start to see declining box prices on reduced daily/weekly volumes next week or no later than the week after next. Traders always look ahead and anticipate this weakness and at this time of year they further worry that Memorial Day business is now coming to a end. The net result being it should be tough to hold a rally next week.

Like pork, U.S.D.A. scanner data shows April retail beef prices almost 6% over last year with choice beef just 0.6% over 2011.

We are now looking at the strongest seasonal down in boxed beef prices of the year. This down-side correction should turn packer operating margins back to negative territory (now a positive $11.10 a head) and this in turn should see cash cattle being bid lower by beef packers. Present $120.00-$122.00 cash cattle should be able to go into the $112.00 area by late July. It is also possible, should we start our normal 12-14% correction from present $122.00 levels, to take cash cattle into the $105.00 area in July although present feedlot number appear current and this would limit a huge downside correction in cash cattle going forward. We are going to need a continued lowering of gasoline prices into summer to keep the “wheels” from falling off cash cattle.

We have been waiting several weeks for June cattle futures to advance into the $118.00-$120.00 area and as I write this we are trading 118.42. I’m not smart enough to tell you where in this 200 point range you should make the trade. I can tell you that we stay in the trade unless June closes over 122.60.

June cattle are trading in the 3000-3200 area over June hogs. As I write this June cattle are 3085 over June hogs. We need to sell June cattle against buying June hogs in this 200 point area and will need to risk 200 points from point of entry.

We are trading 50-60 higher today as traders are looking for April placements to be down 12% from April of last year. Should we get a friendly Cattle-on-Feed this afternoon and not hold a early rally next week we are probably looking at early spring highs for June cattle futures.

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.

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com 

Monday, May 14, 2012 at 9:15 a.m. Central:

Hogs:

Today’s missive will be short as we are moving to new offices. There may, or may not, be a report tomorrow depending on our ability to be up and running tomorrow.

Things are looking up in daily hog fundamentals. We put an additional 43 cents on pork product Friday and were up a large $2.57 for the week. We put $1.97 on product the previous week, and this 2-week total of $4.54 is quite good for the first two weeks in May.

Weekly wholesale pork volume of 457 loads was 15% over the previous week, 13% over last year and a large 39% over this same week in 2010. It does appear that wholesale pork trading 15% under last year is finding decent near term demand. It will be interesting to see if this lasts more than a few weeks. In any event, the short side of hog futures appears limited for this week and possibly through next week.

The problem continues to be the basis premium that June hogs hold to the present lean hog index. We went home this past Friday with June hog futures at a 595 premium to the lean hog index (7935). Last year, we had June futures with a 246 premium and we have a 5-year average premium of 215. The lean index was 157 lower last week -- almost 14% under last year -- although we were up lower last year and 25 lower for this week in 2010.

June hog futures are on a 5-day rally of a small 158 points as traders continue to anticipate the normal seasonal reduction in weekly harvest levels (normally, harvest declines 125,000 head per week into July) and corresponding increase in packer operating margins as pork product works higher on harvest reductions. The problem remains as to when the cash hog market will find its bottom.

Pork packer operating margins went home this past week at a small eight cents negative. This is the best their profit margins have been since the third week in February. Hopefully, this much better cutout will be supportive for cash hogs this week as farmers push to complete corn plantings thereby limiting daily cash hog receipts at pork packer buying stations.

We need to stay away from the short side of hog futures this week. You should be out or long. At present, the short side belongs to clowns, fools and jugglers.

We want to revisit being long June hogs against short June cattle sometime the latter part of this week should the cash hog market start higher.

Cattle:

This is the toughest time of the year to be long cattle futures. Boxed beef starts lower into July and/or early August resulting in cash cattle having a normal seasonal break of 12% to 14%. As we have talked before, should this break come from our $131 highs in February, we could take present $122 cash cattle to $112. If we do see the normal price decline from $122, we could see cash cattle go into the $105 area. In any event June cattle futures at $115.15 appear to be overpriced for this time of year.

Choice boxed beef was 82 cents lower Friday and down $1.19 for the week against being $2.36 lower last week and $1.78 lower for this same week in 2010. It does appear that the seasonal decline in boxed beef prices has started as retailers usually have pre-book spring/early summer grilling business. Don’t forget that last Thursday’s choice boxed price of $191.51 was just 3.5% from the all-time high made several months ago. High gasoline prices and record high beef retail prices will keep a lid on prices into summer.

This is a tough week to be short June futures as the Goldman Roll is now finished and many times we see floor traders buying June in years when there is a decent discount in June futures price from cash cattle. In addition, the June cattle butterfly usually starts higher this week as the G.R. comes to its end. We are waiting to try the short side in June cattle futures should they get into the $118 to $120 area in the near term.

Today is the 15^th trading day from the lows in June cattle. We have talked of the natural tendency for meat futures to have a 2- or 2-week advance after a large move to the upside or downside. We should be about at this are this week.

We also plan to revisit the short June cattle-long June hog trade in the near future if/when the cash hog market finally finds its seasonal bottom.

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.

1-800-280-4566

rshort@PFGBEST.com 

Friday, May 11, 2012 at 9:30 a.m. Central:

Hogs:

A nicely higher $1.96 on pork product for a 4-day, $2.14 up-move in pork product is taking June hogs 65 points early this morning. It does appear the seasonal pork product advance has started, albeit two to three weeks later than normal.

Our old friend the lean hog index continues lower as it was 18 points lower yesterday and is now down 136 for the week against being 9 lower for this week last year. June hog futures closed at 8430 last night and this is 138 higher for this week, putting June at a 494 premium to the lean index, an advance of 214 points for the week.

Last year June hog futures closed with a basis premium of 246 points with a advance of 207 for the week. This advance in the basis usually happens at this time of year as psychology shifts to the positive side when traders, always looking ahead, know some sort of higher product market shows up in May and carries into the middle of July. How far we can push product to the upside this year will be interesting to watch. With retail pork still priced higher than last year and gasoline on a small, 4-week decline of 15 cents a gallon, the upside may be limited. But at this time of year, the market will react by going higher anytime it sees a good daily up in pork product.

Pork packer operating margins have turned positive for the first time since the second week in February as last night saw their margin at a positive $2.24. You can’t trade an operating margin, but to finally be higher is price supportive going forward.

Because of the higher than normal basis this year, we are going to need help from the cash hog market to start going higher; that is its seasonal tendency in May into June. This, in turn, will take the lean index higher, thereby removing some of the larger-than-normal basis from futures contracts.

Pork packers will probably harvest 4% to 5% more hogs this week than in the same week a year ago, and with heavier hog weights, we could see pork tonnage for this week 6% over last year. If you see the glass half full you can say they see better business coming. If you see the glass half empty you can say putting money on product next week won’t happen. This is where next week’s trade will be made. If we can absorb this week’s harvest levels with product going higher, it is probable the early spring lows are in. With gasoline still problematic and retail pork prices way too high, I’m not sure how far to the upside we can go.

I’ve been telling you to be out or long in hog futures as this is not the time to be short from a seasonal standpoint nor from a psychological standpoint as we are coming from a 10-week decline of almost 1600 points. Human nature, being what it is, will always try and look in the other direction.

These last three weeks in May are going to be tough. We must see some upside in the lean hog index (higher cash hogs) and stay out of the way of a further seasonal downside correction in cattle futures.

Should product continue higher next week we will forget the higher-than-normal basis, and w’ll buy June hog futures.

Cattle:

I’m tired of talking about this, but let’s go over this for the last time. In the good old United States of America, retail chains book expected spring summer grilling needs in late March through April 10.  Yes, grilling now picks up into early summer, but this business has been booked.

Wholesale boxed beef prices are just 3.5% under all-time record highs at a time when gasoline is still way too high. Anytime choice boxed beef goes over $190, we see retail business flagging. We went home Tuesday night with choice boxed beef at $191.51 and last night we were $1.59 lower at $189.92. We now enter the worst two-month demand time for retail beef interest. As boxed beef prices decline, we see beef packers bidding less for cash cattle with the result of a seasonally decline in cash cattle market of some 14%. If we say this year’s decline started six weeks early as traders worried about record gas prices usurping beef demand, then we can assume the $131 high will take a seasonal lower cash cattle to the $112 area. If we assume the 14% cash cattle starts from this normal time of year, we can see cash cattle in the $105 area by late July. In any event, June cattle futures at $115.85 are overpriced.

The present bull argument centers on a current feedlot population; the thinking goes we are going higher in cash cattle into June. At the present time we do have a feedlot population that appears to be current although in the short term, this week’s showlists in Texas, Kansas and Nebraska increased 17,000 head against a decline of 22,000 a year ago. This now puts the current 3-state showlists at 284,000 against last year’s 254,000 (+10.6%). You can’t trade these rather cryptic numbers, but it does raise the question as to present feedlot numbers.

In addition, the psychological discount that June hold to present cash markets will make it rather easy to take beef packer lower prices as cattle owners can lift their hedges to make up for taking lower money for their cattle. Should boxed beef continue lower into next week we will return to the short side and/or revisit the short June cattle long June hog spread that worked so well the last time we did it.

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.

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com 

Thursday, May 10, 2012 at 9:40 a.m. Central:

Hogs:

With the ham market lower last night, we lost 71 cents on pork product and are now a tiny 18 cents higher for the week against a 3-year average of adding $1.81 to product for the first three days of this week.

The wholesale composite index is now at 7816 against 9236 last year (down 15.4%). Three-day pork product volume of 312 loads is 17% over last week and 15% over last year. It is this increase in weekly pork product volume the last several weeks that is helping traders to think the seasonal bottom is near, although one to two weeks late, and this in turn is generating some new selling this week.

The lean hog index (7974) continues lower; it was down 23 points last night and is now 118 lower for the week against last year being down 47 points for the first three days of this week.

The past 3-day June rally has now put June at a 511 premium to the lean index and a little high when compared to the 5-year average basis discount of a negative 43. Traders are looking for the normal spring pork product rally and cash hog advance; they don’t want any part of the short side, and therefore, they’ve put a rather large premium in June hogs. While you can’t trade the basis, it does put a small amount of skepticism in any further rally until wholesale product goes seasonally higher and takes the cash hog market with it.

China is saying their Q1 pork production expanded 4.4% causing their pork prices to decline by 15% since January. In addition, we have U.S. export data for March out today and traders are worried that exports for March will be down for China and South Korea.

On the plus side, we have pork packer operating margins climbing out of the basement as cash hogs continue to work lower. This morning, their margins are just 74 cents negative after being $8 to $14 in the red for the last several months; right now, they are as good as they have been since the third week in February.

I don’t have enough friendly fundamentals to tell you to get long June hogs, but I can tell you this is not the time to be short. We have a strong bar chart support area for June in the 8300 area and this is holding for the present. Product is being looked at as a ticking time bomb that will be working higher sooner than later. The only problem is the rather strong basis premium we have built into futures over the last few days as traders abandon interest in being short and a pesky seasonal for hog futures to break next week.

I have no idea as to making a trade in hog futures at this time. Hopefully something will show next week.

Cattle:

And, as with hog futures, I’m at a loss for what to do in cattle. Choice boxed beef was 69 cents higher last night and is a decent $1.22 higher for the week on OK volume of 611 loads. Cash cattle are trading $120 to $123 with $2 to $3 lower bids and $2 higher asking prices. This is a normal bid-offer spread for any given week.

Choice beef has been on a 19-day rally of $14.81 and this now puts choice at $191.51 or just 3.5% under all-time highs. Can we sell beef in May at close to record prices at wholesale and retail with gasoline down just 15 to 18 cents from record highs made last month? Remember we are at our seasonal top in early May for beef booking for spring/early summer grilling.

A normal seasonal cash cattle decline of 14% would put cash cattle in the $112 to $114 area by late July or early August from the $131 highs made in February. If we get a normal, 14% correction from present $120 to $122 prices, we could be looking at cash cattle in the $104 to $107 area by late summer. With June futures closing $116.60 last night there could be another major down coming in cattle futures.

USDA corn crop reserves for this year and next came out over 11% higher than average analyst estimates. Traders are buying front month cattle against back month futures today, but as with most of these reports, traders will forget today’s corn stocks by tomorrow. Let’s see what March beef exports show in today’s USDA report.

We are looking at June cattle shorts in the $118 to $120 area assuming we can get to this area at the same time boxed beef volume dries up on down money. At present the short side appears limited.

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.

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com 

Wednesday, May 9, 2012 at 9:30 a.m. Central:

Hogs:

Hog futures have the good, the bad, and the ugly this morning. The good news is we did put another 42 cents on product and are now 89 cents higher for the first two days of this week. After putting on an impressive $1.94 on product last week, we are now $2.86 higher in the last seven trading days. The bad centers on the larger than normal basis hog futures have against the lean hog index. We went home last night with June hogs a 280 premium against a 4-year average premium of 192. July carries a 443 premium this morning against last year’s premium of 210. The ugly shows up in the inability of the lean index to start its seasonal rally. The index was 28 lower last night and is now down 95 points for the first two days of this week against a 4-year average that sees the index up 95 points for the first two days of this week.

Cash hogs are 50 cents to $1.50 lower this week and that fact continues to put pressure on the lean index. Nothing has changed the last five days as we have a larger than normal basis premium built into hog futures and continue to wait for the cash hog market to start its normal spring advance.

Traders are tired of the 11-week, 1578-point selloff, and they refuse to sell this market. There is good technical support at 8300 and this has held for the last three trading days.

The pork belly market, for the third time in the last four weeks, is being called at a bottom. This same talking showed up last year, the same week, and it took until after the Memorial Day holiday for the cash belly market to advance. The ham market is in good shape, but at this time of year usually goes nowhere. In short, there is a lot of smoke, but no fire, in product at the present time.

The only thing to talk about this morning is the same thing we have talked about the last several days. Monday’s low was the 21^st down day from its last 6-day rally that ended on April 9. Over the last few months, I have mentioned the rather strange occurrence of livestock futures to go higher after a 20- to 22-day break or go lower after a 20- to 22-day rally. This strange phenomenon coupled with trader reluctance to be short means we can’t sell hog futures at this time.

By the same token, the rather large basis with a continuing daily lower lean hog index means we can’t be long. We watch. At this time of year we must be out or long hog futures. Still can’t find enough ammunition to get long.

Cattle:

Just as in hog futures, traders want no part of the short side in cattle futures after the just completed 10-week down of 1,562 points (12%). We are now 10 days off our June low for a 420-point rally. Most of this 420 points came last Thursday when June went above its major technical down trend line and closed limit up (300 points).

Choice boxed beef was 3 cents higher yesterday and is up a small 53 cents for the first two days of this week against being $1.98 higher for the first two days of last year. Two-day load count of 364 loads is 6% over last week but a little more than 12% under last year’s 2-day total of 416. Last week’s 1001 total was good, not great, and being another 5.5% higher this week than last is giving long position holders hope of better near-term business.

Most spring/early summer grilling business has already been pre-booked. The strongest seasonal of the year has boxed beef highs in by the April 10. Choice beef went home last night at $190.82 and this is a little more than 3% under all-time highs at a time when gasoline has had a small 15-cent downside correction over the last four weeks. It seems strange that gasoline is just down 4% at a time when oil is down 13% from its highs made the last week of February.

With traders reluctance to be short and decent boxed beef volume the last several weeks on higher money, it may be possible to take June cattle futures into the $118 to $120 area sometime late this week or next. Should boxed beef volume dry up at these lofty price levels, we will be looking for new contract lows in June cattle by late May.

One of the strange things to come out of the 10-week correction in cattle futures was the reluctance of large traders, funds and money managers to get out of their long positions. Around 50% of net longs were liquidated at a time when hog futures open interest went net short. What we have been seeing on this last 10-day rally is the large amount of open interest now coming out of cattle futures. Last week over 5,000 contracts were liquidated and so far this week almost 5,600 contracts have been closed out. It appears that large traders, funds and money managers couldn’t get out on the down move, but are now happy to liquidate on the up. Go figure. This will limit upcoming rallies.

Looking to get short June cattle futures for the normal seasonal down in wholesale beef that always shows in late April or early June. Not there yet, but soon.

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.