Livestock Report

Livestock Market Comments(71)

Robert Short — 2012-02-03T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

Feb. 3, 2012 at 9:15 a.m. Central:

Hogs:

Pork packers have cut kills the last two weeks to help support product and help their very bad operating margins (last Thursday’s negative $16.58 was the worst in over a year!)

We did lose a small 32 cents last night, but for the week we are up $1.67 (last year up 91 cents). Traders decided to jump on the product strength and we went home last night with April hogs up 238 points for the first four days of this week. We have stopped April at the 50% retracement area from the mid-October high to mid-December low; it usually takes a few days for traders to consider a bar chart area of this strength to decide to push to new highs or take profits.

Pork brokers are undecided on next week’s product direction. The belly market should continue higher and possibly the ham market (Easter business), but loins and butts are lagging. History tells us April futures usually make their monthly highs next week as traders start to focus on early southern state beef grilling business at the expense of pork.

The only bullish argument for next week will be the less than normal April premium basis (+175) and the fact that product volume on this week’s up money has stayed relatively good. Volume for the first four days of 376 loads is down 8% from last week, but 49% more than this same week last year.

We should be looking to sell April hog futures in the 9050 to 9200 area should the market rally early next week. Traders will look ahead and anticipate late-month product weakness. There is a good possibility that today’s early high of 9040 is the high for the month, but with decent daily volume we will wait into next week for initiating a short position.

We are short three units of April hogs against June and missed adding a fourth unit yesterday.

We are long two units of June hogs against June cattle and have been since the last time Hell froze over and we are still waiting for the outcome.

Cattle:

Cattle futures closed 30 to 50 lower yesterday as traders overlooked Midwest snow and southern plains rain (muddy feedlots next week) as their attention turned to weekly beef export sales. Beef exports for the last full week in January were a very light 4,100 metric tons. This goes against a 4-week average of 14,167 metric tons and for the year-to-date, exports are down over 5% from last year’s pace. Most traders are not interested in the short side of cattle in January and February as they know cash cattle have a strong seasonal advance into April.

Traders know that January and February are always “buy the bad news” months. In addition, the prospect of producing 4.6% less beef this year from last has traders pushing back-month cattle futures to new contract highs the last several weeks.

Keeping traders honest is the ever-present worry that high-priced retail beef will limit domestic usage meaning that if exports falter, we may have a problem. Yesterday’s light weekly export sales played on this worry giving us the 30 to 50 lower market.

February could be a very quiet month for cattle futures. Worries on domestic and export business has kept a large premium basis from being put into present prices and this is price supportive going forward. On the other hand, packer operating margins are close to historic negative levels forcing packers to try and buy cash cattle at lower prices and box beef is more than 6% lower than the end of December (pork was the main January retail feature.)

We should continue to look to buying April cattle futures on corrections the middle two weeks of February. This is nothing more than trading the normal February psychology of buying negative news. The 5-year average is for April to close 133 points higher for the month.

We are short two units of June cattle against long June hogs and are growing old waiting for this spread to go somewhere/anywhere. Let’s keep our liquidation at June cattle trading 3030 over June hogs for more than one hour. I’ve never seen a cattle-hog spread going nowhere for such a long 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.

Livestock Market Comments(70)

Robert Short — 2012-02-02T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com
Thursday, February 02, 2012 at 11:59 AM

Thursday 10:00AM 2/2/12
Pork packers cut last week’s slaughter by 2.5% from the week previous and are cutting harvest for the first three days this week another 3.5%. This has been necessitated as packers found their operation margins at 12 month lows last week.
Pork product was up a small 10 cents last night, but is a large $1.99 higher for the week. With negative psychology on expected retail and export business for 2012 giving futures a smaller than normal “basis” premium, traders decided to try the long side of futures this week on product strength and we have just had a three day 300 point rally in April futures. This now puts the April “basis” at a more normal premium of 241.
Last night April closed at 9035 and this is a 50% retracement of the mid-October to mid-December break of 1000 points. This is a good technical area for a correction as the lean-hog-index will probably do very little into next week as pork packers are cutting kills and bidding lower for cash hogs. In addition, warmer than normal temperature will keep hog weights from declining in the near term and this will help to limit any near term strength in the index.
We talked last week of this week’s possibility of a April rally into the 8900-9050 area and we are now at the top side of that range. While this is a good place for a one or two day correction to the down side pork volume is staying to high on up-money for this trade.
We are short three units of April hogs against long June hogs and would add a fourth unit should April hog trade 840-780 under June hog.
We are long two units of June hogs against short June cattle and would use a protective “stop’ should June cattle trade 3030 over June hog for more than one hour.

Very quiet week in cattle as we are up just 14 cents on choice box beef for the week. We are expecting 5-8 inches of snow the next several days in Nebraska and parts of Iowa with rain in Texas and Oklahoma. Traders will probably buy breaks today and/or tomorrow worried that cattle will be knocked off weight gains on muddy feedlots next week.
We are short two units of June cattle against long June hogs for almost four weeks with a small loss. I’m tired of watching this spread.
We continue to want to liquidate this spread should June cattle trade 3030 over June hogs for more than one hour. We were right the beef product market in January but wrong cash cattle.

Livestock Market Comments(69)

Robert Short — 2012-02-01T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

Feb. 1, 2012 at 9:45 a.m. Central:

Hogs:

Last Thursday, the pork packers’ operating margin was a negative $16.40 per head. This was the worst margin in over a year and packers have responded by lowering last week’s harvest 2.5% from the week before. And, for the first two days of this week, they cut harvest another 4.4% from the first two days of last week. This reduction in harvest is forcing pork product higher as we have put $1.89 on product for the week against just $0.34 last year.

With constant worry that pork exports will be less than last year’s pace, traders have kept a normal basis premium out of hog futures. April went home last Friday with a 2-point premium to the lean hog index against a 130-point premium last year and a 6-year average of 691.

While weekly harvest is being curtailed, we are seeing a corresponding increase in pork product. Most of this is coming from hams (Easter business) and pork bellies (seasonal February retail featuring). In addition, pork product volume has been very good as last week’s total of 472 loads was 6.5% over the previous week and 50.3% over the same week in 2011. It remains to be seen what pork volume will do as up-money is put on product this week.

We talked last Friday of the possibility of a product rally this week; if futures rally with this product strength, we would look to the short side of April futures in the 8900 to 9050 area if/when pork product volumes decline on up-money. We are in the bottom side of this area and are watching another day for product strength. There is good resistance for April hogs in the 8935 area.

We are short three units of April hog futures against long June with a average somewhere around April at a 750 discount to June. We are waiting for a 3- to 5-day rally to add a fourth unit.

We are long two units of June hogs against short June cattle with a small loss of around 100 points. Liquidate this spread should June cattle trade 3030 over June hogs for more than one hour.

Cattle:

Last week, beef packers tried to help the almost record negative operating margins by pushing choice box beef $2.13 higher for the week. The problem is that this weekly box volume was reduced to just 924 loads – off 29% from the previous week and 9.3% less than last year.

Traders, seeing last week’s box volumes declining on up-money, and encouraged by Friday’s surprise $2.00 break in cash cattle (Texas price of $123), came into the market Tuesday short the market. As hog futures started higher, traders ran for the exits, giving us a 70-minute, 100-point rally with a 2-day decline in open interest of 2119 contracts.

I have no short-term ideas in trading cattle futures. January saw very light weekly boxed beef volume as prices declined 6% for the month. In spite of deteriorating operating margins, packers put $2 to $3 on cash cattle for the month. This combination of higher cash cattle and lower box beef prices has got beef packers looking at close to record negative operating margins.

Because of this one might look to sell near term rallies, but January and February are always “buy the bad news” months as traders are well aware of the strongest seasonal cash advances each year. Our normal advance in cattle futures into late March or early April is to put 12% to 15% on cash cattle from the August lows. This seasonal dictates a cash cattle market in late March-early April in the $128 to $131 area. April cattle futures went home last night at $128.57, and that gave us little room for a trade.

Weather models are predicting a 6-10” snow event for this weekend in the Midwest with heavy rains in the southern planes. This is potentially bullish as warmer weather next week will turn feedlots muddy. Mud clings to cattle, forcing them to shiver in an attempt to remove it. This extra energy that the cattle use as they try to remove the mud will cause them to have less weight gain daily. Traders will usually buy February futures as they believe this will produce fewer near-term cattle to be offered for sale as they are not weight ready.

We are short two units of June cattle against long June hogs for the last 3 to 4 weeks. January lower box beef prices were offset with higher cash cattle prices. The result is that this spread has done very little. From a seasonal standpoint, June is the weakest cattle futures contract (grilling business pre-booked) and June is the strongest month for hogs (BLT season and lower weekly harvest levels.) This is keeping us in the trade, but should June cattle trade over June hogs by 3030 for more than one hour, it is technically wise to liquidate the spread, taking a small loss and moving on.

Livestock Market Comments(68)

Robert Short — 2012-01-31T14:54:00Z

by Bob Short, PFGBEST
1-800-280-4566
rshort@PFGBEST.com
January 31, 2012 at 9:25 a.m. Central:

We put 65 cents on pork product last night against putting 4 cents a year ago. Traders continue to focus on pork product direction for trading as we have lost our normal premium basis in December and January as product continued to disappoint.

April hog futures went home last night 56 under the lean hog index (at 8771) and this is way under their normal 6-year premium of 649. When product does better than expected the market must respond to the upside as no premium exists. Should trader psychology shift to believing large exports are continuing, we could see an immediate 300- to 400-point rally!

Pork packers have been paying higher for cash hogs the last five weeks but have watched product decline over 6%. Paying higher for hogs while losing money on product is the reason for operating margins this morning at a negative $11.00 per head against a positive $11.50 last year and a positive $5.14 in 2010.

Pork packers will be cutting harvest levels this week to try and put money on product. This will mean the cash hog market will be hard pressed to not lose money into next week. This, in turn, will see the lean hog index decline with the possibility that futures will put a mild premium back into the basis as traders are still using product as the main tool for near-term trading.

Most years, April hog futures have closed lower this week, as well as for the month of January, as basis premium is taken out for the normal seasonal down in cash hogs starting mid-March as before-Easter (April 8) ham business is finished. This year, with no basis premium, the market may be able to work higher into the next 3 to 5 trading days should product continue higher on packers’ present intentions of reducing daily harvest levels.

We are short three units of April hogs against long June hogs and look to add a fourth should we get any 1- to 3-day correction.

We are long two units of June hog futures against June cattle and would liquidate should June cattle trade 3030 over June hogs for more than one hour.

Cattle futures closed over 70 lower yesterday as a surprise $2.00 break in Texas cash cattle caught traders looking the other way. Many floor traders came into yesterday lightly long as packers were pushing box beef prices $2.13 higher for the week. The problem comes when you see their weekly volume declines on up money. Last week, box beef volume of 924 loads was 29% less than the previous week and 9% under the same week last year.

Psychology remains firm as traders continue to believe current USDA estimates for beef production to be down 4.6% this year from 2011 levels. Even with the constant suspicion that beef exports are on the decline and U.S. consumer demand has gone to pork… and cheaper chicken… traders believe feedlot market ready cattle are still in short supply.
Traders are also aware that April futures have not closed lower in February the last five years. The average rally is 169 points ($676.00).

Cattle futures breaks will be bought during February and the current $106.50 per head negative operating margin ($112.10 record in mid-December) should see a slight erosion in cash cattle near term. If outside markets stay quiet we may expect a 200 to 300-point correction into mid-February. February is the same as January as traders know to always buy the breaks going into the seasonal cash cattle highs in April made on strong bookings ahead of the grilling times.

We look to buy April cattle futures on any potential corrections into early February.

We are short two units of June cattle against long June hogs. Our average for this spread is somewhere in the 2800 to 2850 area. We would liquidate if June cattle trade 3030 over June hogs for more than one hour. We were right in thinking pork would take the January spotlight from beef, but did not see the extreme tightness in cattle feedlot offerings.

Livestock Market Comments(67)

Robert Short — 2012-01-30T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

January 30, 2012 at 9:40 a.m. Central:

We lost 3 cents on pork product Friday and were down $1.75 for the week against putting a large $2.93 on product last year. This continues to make traders nervous about pork business going forward as product is 2.3% lower for the month and 6% lower than last year at this time.

The one bright spot is reported volume. The USDA reported 472 loads traded last week against 443 loads the previous week and just 314 loads last year. Weekly pork volume continues to be large as lower wholesale pricing is attracting retailer interest.

Pork packer operating margins were a negative $16.58 this past Thursday (worst of the year) and packers will be lowering hog harvest levels in the coming weeks to try and put a floor under declining product.

February hog futures were $1.35 higher last week and closed the month of January 237 points higher against a 5-year average advance for the month of 192. April futures usually close lower in February as they lose their basis, but this year, we find April with a 2-point premium on Friday against a 5-year average premium of 691

As traders spent December and January worried about the possibility of declining exports and lessening domestic demand we lost any premium April had to the lean hog index. This lack of basis premium has already put April futures seasonal break in February and March on the board. Traders will watch pork product this week to see if reduced harvest levels put a bid to product. Should pork product advance we will find a higher Friday close, although most years, we close this week lower. There is very little to trade at the present time. We are somewhat stuck.

Technically, a close in April below 8550 would turn daily bar charts negative while a close above 8850 would be bullish. We are short three units of April hogs against long June hog futures and looking for an addition 200 to 300 points by early April. We are long two units of June hog futures against short June cattle and have watched this spread go against us by a small amount over the last 22 days. Liquidate this trade if June cattle trade 3030 over June hogs for more than one hour.

February cattle futures closed last week up 15 points with April 73 higher and June up 85. Beef packers are trying to force product higher to protect a deteriorating operating margin that is approaching mid-December’s record loses. Packers got choice boxed beef $2.13 higher for the week, but weekly volume declined. Last week’s 924 loads was 29% less than the previous week and 9.3% less than last year – pork volume appears to be much better than beef volume.

Beef packer operating margins averaged a negative $97.41 for the past week and this is about as bad as it gets.

Traders continue to shun the short side as everyone knows we have the USDA forecasting 2012 beef production down 4.6% from 2011 levels. Friday’s semi-annual Cattle Inventory report was, for the most part, a normal non-event for trading today Monday. The U.S. cattle herd as of January 1 was 90.77 million head. This was 98% of last year and 0.5% less than the average analyst’s estimate. The calf crop at 35.3 million head was in line with estimates looking for a 1% decline from last year. All in all, there is little direction from this for trading in the week ahead.

Texas cash cattle lost $2.00 late Friday and now are priced at $124. Beef packers continue to try to put their operating margins back to livable levels and saving money on inventory is the quickest. This surprise $2.00 lower on Friday is the reason for the early lower futures market this morning.

There will be good technical bar chart support for February cattle in the $121.50 to $122.70 area and it may be a seasonal buy should cash hold together this week. Like hog futures, the last week of January into the first week of February is usually a very slow time for meat futures.

We are short two units of June cattle against long June hogs and would liquidate should June cattle trade 3030 over June hogs for more than one hour. The wholesale beef market collapsed over 5% for January, as expected, but the cash cattle market has traded $2.00 to $4.00 higher for the month.

Livestock Market Comments(66)

Robert Short — 2012-01-27T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

Friday, January 27, 2012 at 11:33 AM

Friday 9:30AM 1/27/12

We lost 56 cents on pork product Wednesday and another $0.88 last night and now find pork product down $1.72 for the week. The pork composite index is 8329 and this is down 2.2% for the month and 6% lower than at this time last year. We came into the month looking for good pork business at the expense of much higher priced beef, but are going out of the month asking where is the expected domestic and retail demand.

Cash hogs have advanced $4.00-$6.00 this month and have pushed the lean-hog-index up 6.6% for the month and this has February futures up 1.9% for January (165 points). Since our 5 year average has February up 192 points for January, we appear to be right in line for a normal advance for the first month of the year.

Pork packers paying $4.00-$6.00 higher for cash hogs this month and losing 2.2% on product now find themselves with a negative operating margin of $16.58 (positive $7.96 last year). Traders expect hog kills will be reduced next week to try and keep product from further declines. Pork brokers are talking higher product next week, with the exception of loins, and this is holding February futures higher today.

I would look to the short side of April hog futures should we get a early next week rally into the 8900-9050 area assuming next week pork product strength is nothing exceptional. With April carrying a 0 “basis’ this morning, we need a rally to sell. The 5 year average is for April to close 172 points lower for the month of February.

We are short three units of April hog futures against June with the spread closing last night at a negative 1005. Our average short should be in the negative 745 area for a profit slightly over $3.000. There is no need to take profits as this spread should be capable of an additional 200-300 points.

We are long two units of June hogs against June cattle and are losing 100-150 points on this spread. We would continue to liquidate should June cattle trade 3030 over June hogs for more than one hour.

Beef packers have paid $4.00-$5.00 higher for cash cattle this month as they watched their box beef market erode $10.11 ( 5.2%). This combination has put their operating margin back to over $90.00 “red”. This is very close to the negative $112.10 record set in mid-December. Traders continue to search for reasons for cash cattle going higher as beef product implodes. The “Live is the drive” saying from 40 years ago is still the main mover of cattle futures as we deliver cash cattle against futures unlike hog futures being cash settled.

February cattle futures are 310 points higher for the month with June a seasonally smaller 193 higher (weakest month of year).

Beef packers are trying to support product by slowing weekly harvest levels. Last week they reduced weekly harvest 3.9% from the week before and so far this week we are down another 3.2% from last week’s reduced levels. This reduction in output finds choice beef up $2.62 for the week but volume for the week is staying light on the up-money in product

The five year average is for February cattle futures to advance 288 points for February. The normal seasonal cash cattle advance for the month is $2.00 to $3.00. The average cash cattle advance into early April is 12-15% over our August low of $114.00. This would put cash cattle in the $128.00-$131.00 area in late March and April futures closed last night at $128.05, or the bottom side of this expected cash advance.

We are short two units of June cattle against June hogs with a 100-150 point loss. We got the expected January pork volume at the expense of beef, but cash cattle continued higher keeping futures on the firm side in spite of near record negative operating margins. We continue to want to liquidate this month old spread should June cattle trade over June hogs for more than one hour.

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.

Livestock Market Comments(65)

Robert Short — 2012-01-24T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

January 24, 2012 at 10:00 a.m. Central:

In spite of losing a small 37 cents in pork product the hog futures are up 60 to 80 points. No one this morning has any good ideas as to why we are higher but bulls are quick to point out a higher futures on negative overnight product news is a market that can’t be sold.

Open interest increased over 6,000 contracts last week and an additional 1,075 yesterday. We may be seeing funds returning to the long side after an 8-week selling binge. Total hog open interest is 247,793 contracts and this is 12.7% over last year.

For the month of January, pork product has been disappointing as we are up just 10 cents for the month against putting $8.60 on pork product in January 2011. The lean hog index is up 382 for the month as cash hogs have advanced and hog weights have declined and this is close to last year when, for the month-to-date, we put 441 on the index.

February hog futures are up 217 points for the month being pulled by the increase in the lean index although they are about 300 points less in premium as traders continue to worry about 2012 pork exports.

February and April hog futures are up to 38% retracements of the entire 1100 point mid-October to mid-January futures break. June hogs are slightly over a 66% retracement of this same correction this morning. These are major bar chart points for hog futures to deal with the next several days. If product does not advance and/or the lean hog index stops its present rally, we may see a correction into next week. For the present time let’s assume the 8700 area will stop February hog futures with the 9830 area probably halting the advance in June.

Unless product starts higher or cattle explode to the upside near term advances in hog futures should be limited into next week.

We are short three units of April hogs against long June hogs and looking for corrections to add a fourth unit. We are long two units of June hogs against June cattle with a small loss.

Like hogs, traders have no good reason for the 100 point higher cattle market this morning. February and April cattle futures are less than 50 points from contract highs with June and back futures making new contract highs the last three days.

Psychology remains very positive as traders have been told beef production will be down 4.6% this year from 2011 production. The normal cash cattle late summer to early April price increase is 12% to 15%. Late August saw cash cattle at $114 and this would project a early second quarter price in the $128 to $131 area. This puts February and April 200 to 300 points under this price area. On a day like this, when cattle futures rally 100 points on no new daily news, it tells us that buying bad news in January is always the way to trade.

January has been a very tough time for beef packers as retailers have been buying cheaper pork and not beef. This is seen in very large weekly pork volume and light weekly beef volume in spite of packers selling boxed beef $8.00 lower over the last few weeks. In spite of this very week product market, beef packers have paid $5.00 higher for cash cattle over this same time period. Paying up for cash cattle and selling beef product sharply lower now finds packers with a negative operating margin of over $100.00 head and fast approaching the record $112.10 negative operating margin in mid-December. Traders concerns for cash cattle going higher is trumping the January debacle in moving beef at sharply lower prices. January, is indeed, a month to buy bad news.

We are short two units of June cattle against long June hogs and must liquidate this spread should June cattle trade 3030 over June hogs for more than one hour.

We did this trade for the weak beef market in January, but the cash cattle advance has traders’ attention. Why beef packers are paying higher money for cattle with wholesale beef going to the basement is a good question. Some traders will tell you there is a “hole” in feedlot numbers while others will trot out exports. No one really knows.

Livestock Market Comments(64)

Robert Short — 2012-01-23T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

January 23, 2012 at 10:005 a.m. Central:

Livestock Market Comments:

We put 87 cents on pork product Friday and $1.79 for the week. This was much better than last year when we put 50 cents on product, and 2010 when we advanced product $1.68 for the same week. Traders continue to believe pork is the main interest by retailers in January and possibly February as wholesale pork is about the same price as last year while beef is 10% higher.

Last Friday, monthly cold storage reported January first pork stocks at 487.1 million pounds. This was 2.7% less than the previous month and 3.1% less than the average analyst estimate. It was considered a friendly report for today.

February futures had a 2-day down move Thursday and Friday with Friday’s settlement at a 38% retracement of the previous 4-day rally of 243 points. The combination of the 38% retracement, $1.00 higher cash hogs this morning and friendly monthly cold storage drove the market over 100 points higher this morning.

February has good technical bar chart resistance in the 8630 to 8820 area. Should February close above 8820 it could advance to the 8900 to 8950 area although pork product must continue higher and cash hogs will need to advance $1 to $3 dollars this week to press the lagging lean hog index higher. Not the time to be short. We should be out or long.

We are short three units of April hogs against long June hogs and continue to wait for a technical correction to add the fourth unit.

We are long two units of June hogs against short June cattle for the last three weeks and are about at break-even on this spread.

Friday’s Cattle On Feed was viewed as neutral with 3% more cattle in feedlots than on January 1, 2011, with cattle placed into feedlots down 5.9% (average analyst estimate down 4.8%) and cattle marketed during December 98% against the average analyst estimate of 97%.

Monthly cold storage found January 1^t beef stocks at 451 million pounds and this was 3% over last month and 1% over last year. The report is considered neutral as the 1% increase is very close to the average 2% increase over the last 5 years.

After losing $5.98 on choice box beef the week before last, we lost an additional $2.12 this past week. During this 2-week period, beef packers have paid $5 higher for cash cattle and this combined with the box beef loss has them going home Friday with a negative $93.55 operating margin. Over the next few days, we will going over the record negative operating margin of $112 per head in mid-December. Traders continue to believe weekly harvest levels will be curtailed to help support beef product. This should lessen beef packer need to pay higher money for cash cattle in the near term.

With daily product news is not good (retail pork interest-not beef), beef packers have not be able to break the cash cattle market and this is keeping cattle futures close to contract highs in the front months and at new all-time highs in back months. Psychology of producing 4.6% less beef in 2012 from 2011 is keeping sellers on the sidelines.

This should be a tough week to go higher or lower. Traders always buy bad news in January for the normal seasonal rally in cash cattle into late March and/or early April; on the other side of the equation is the record negative operating margin we should have by the end of this week.

We are short two units of June cattle against long June hogs for the last three weeks with a small loss. Let’s stay with the spread unless June cattle trade 3030 over June hogs for more than one hour.

Livestock Market Comments(63)

Robert Short — 2012-01-20T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

Friday, January 20, 2012 at 11:43 AM

We lost 56 cents on pork product last night and w are now $0.92 higher for the week. Last year we were 81 Cents higher and in 2010 we were $1.85 higher for pork product. We are putting money on pork product but the advance is slow and traders continue to worry about export demand going forward.

Pork product still being called higher next week with seasonal strength in loin, butt and belly cash expected although the five year average is for pork product to lose 78 cents for the upcoming week.

We average a lean-hog-index advance next week of 112 points and this helps get a 5 year average advance in hog futures next week of 55 points. All-in-all the upcoming last week of January from a 5 year average standpoint is very quiet.

Today (2PM) we have a monthly cold storage report and traders will be looking to see if domestic usage during December was better than the 3.7% decline in the pork composite index indicated. Should today’s January 1^st pork stocks prove friendly it will reinforce record November exports and traders will be thinking that demand is holding better than expected from both a foreign and domestic prospective.

Yesterday’s late sell-off in February futures came about as February cattle made a new contract high against February hogs. The last hour of trading saw upside buying pressure in February cattle and down side selling pressure in February hogs as the spread broke out to new contract highs. Traders came into yesterday with little opinion on hog futures direction after a four day rally. There is little to do today as we await the 2PM monthly cold storage.

W are short 3 units of April hogs against June hogs and continue to wait for a correction to add a fourth unit. We started this spread when April was a discount of 660-630 to June. Last night the spread closed with April 902 under June.

No one wanted to trade the short side of cattle yesterday with a major snow storm coming to Iowa and parts of Nebraska last night with nighttime temperatures into the -10 degree area. In addition, we have a monthly cattle-on-feed this afternoon and most traders are looking for December placements (April/June feedlot sales) to be more than 5% less than last year.

Late yesterday cash cattle traded $3.00 higher in Texas at $123.00 and this is the biggest reason for this morning finding futures more than 100 points higher early. With two major reports today we should expect profit taking to develop late today.

As cash cattle head to the attic and box beef prices continue to the basement we are going to get beef packers with record negative operating margins by sometime next week. We went home last night a negative $93.55/per head and will be past mid-December record $112.00 negative operating margins shortly. It is possible that cattle futures highs for the next two to three weeks are being made today. A combination of cattle charts showing double top formations at contract highs and a negative operating margin never seen before should allow for a correction in the near future.

We are short two units of June cattle against June hogs and are falling asleep waiting for this spread to move. Boxed beef prices going south says we should be making money but futures are paying more attention to cash cattle that can’t break. Let’s keep our exit point at June cattle trading over June hog by 3030 for more than one hour.

Livestock Market Comments(62)

Robert Short — 2012-01-19T14:54:00Z

by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com

Thursday, January 19, 2012 at 11:13 AM

Thursday 9:25AM 1/19/12

The beat goes on in hog futures. There are few bearish traders at the moment as everyone knows our seasonal tendency for peak hog harvest rates to be over by early December and when coupled with declining cold weather hog weights we find weekly pork production going lower with the results being higher wholesale pork prices and higher cash hog prices.

We put 40 cents on pork product last night and are $1.48 higher for the week. While this is slightly lower than the $1.84 we put on product last year and the $2.44 advance in 2010 it is still enough to keep trader’s bullish expectations.

February hog futures are 150 points premium to the lean-hog-index (8477) this morning against a 455 premium last year and a 5 year average premium of 271. April went home with a 315 premium against a five year average of 805. This lack of “basis” premium centers on trader suspicions that last year’s export pace will not be sustained this year. This assumption can be changing on tomorrow’s monthly cold storage report. Pork exports in November were a huge 505 million pounds and was a record monthly number. Should December U.S. cold storage stay on the light side we will find psychology coming to terms with the possibility that pork shipments leaving the U.S. have not slowed down. This will make traders continue to look to the long side next week as the “basis” will widen on the changing of opinion on lost pork export business.

February is on a 4 day rally of 340 points and a technical correction may show-up today or tomorrow in front of the unknown numbers in cold storage stocks. In addition, we have a winter storm dumping 5-7 inches of snow in Iowa tomorrow with nighttime temperature approaching -10 degrees. This will knock cattle off weight gain making it a possibility that today will find buying of cattle against selling hogs.

We are short 3 units of April hog against long June hog and continue to look for an additional 250-400 points in this spread.

We are long June hog against short June cattle and continue to wait for the spread to go somewhere. It has done next to nothing for the last three weeks.

I don’t know what else to say in cattle. We are only moving beef at sharply lower money as retailers are featuring pork and not beef during January. This collapse in boxed beef pricing against packers paying up-money for cash cattle has now gotten packer operating margins a negative $90.00 per head and we are going to be approaching the $112.00 record negative margins made in mid-December in the next few days. The only bright spot for bullish traders is that this sharply lower money has bought back some box volume that has been lacking the last 4 weeks. This week’s three day volume of 809 loads is 26% over last year and 17% over reported volume in 2010.

Tomorrow we get a monthly cattle-on-feed report and monthly cold storage report. December placements are estimated to be down over 5% from last year, but feedlot December sales are forecast to be 97% of December 2011 levels. This could put a small amount of downside to February against April/June early next week. Traders will look for December beef stocks to try and come up with a opinion on whether or not beef exports are continuing at last year’s pace

The only thing to talk about this morning is how much snow Iowa will get by late Friday. With nighttime temperatures going to -10 degrees traders will expect weight gains to be adversely effected, and will use this as a reason to buy cattle today and possibly tomorrow.

We are short two units of June cattle against long June hogs and keep waiting for this spread to do something – anything. Continue to liquidate this spread should June cattle trade 3030 over June hogs for more than one hour.