Livestock Report

Livestock Research(25)

Robert Short — 2012-07-09T14:54:00Z

Monday 9:40AM 7/9/12

HOGS

Pork product continues to work its way lower as July 4th business is finished. Last week we lost a rather large $5.30 on wholesale pork and the previous week we lost $5.38 on product. This two week decline of over $10.00 is about as big a decline as we ever see. The problem at the present time is a fairly current producer inventory of market ready hogs. This is keeping the current cash hog market from having much of a selloff, and with product sharply lower the last several weeks, pork packer operating margins are over $22.00/head negative and at record losses. Last year, at this time, pork packer operating margins were a positive $3.33/hd..

Traders are fully aware of the 2-3 weeks pork product selloff that takes place after July 4th business has been completed and this was the single biggest reason for August hog futures to close 145 points lower for the week. The present problem going forward is that August futures have a rather large 736 point discount to the lean-hog-index (100.66) and this is keeping traders from wanting to seriously attack the short side of August. With a tight near term supply of market ready hogs it is going to be tough to take a lot out of the cash hog market over the next several weeks. This will probably keep the present downside correction to no more than 250-400 points. In addition, hog weights are staying on the light side as extreme summer heat is limiting weight gains.

Spread trades will be the biggest focus this week as corn continues higher on lack of moisture. Most traders will be buying December and back hog futures against selling August as feed costs escalate. There will some additional selling of August against buying of July as July went home last Friday with a 444 points discount to the lean index and this must narrow by July’s last trading day next Monday.

If you are short August futures below 9475 you should look to take profits somewhere in the 9100-9350 area. Unless we see a good break in the cash hog market we will not be able to get a sizeable break in the lean-hog-index and with August futures at the present 736 point discount there could be little on the down side this week. Spread pressure may keep August on the defensive, but a two week wholesale pork product break of over $10.00 may see near term product weakness decline.

At this time do not turn an August profit into a loss.

CATTLE

We have priced wholesale beef out of retailer interest. Choice boxed beef was $1.13 lower Friday and down $2.01 for the week against being $0.59 higher for this week last year. Select boxed beef was a large $3.38 lower for the week being $1.91 higher last year.

The biggest thing that shows beef business is seasonally slowing is daily/ weekly volume. U.S.D.A. date for Friday morning showed wholesale beef loads were the lightest of the year at 74 loads and weekly total boxed beef volume of 797 loads was over 14% less than the previous week, 25% less than last year and 30% less than this same week in 2010.

Small volumes of cash cattle traded $1.00 higher for the week with Southern Plains at $117.00 and Nebraska carcass at $186.00-$188.00. As of 2PM Friday there were no cash cattle sales in Nebraska. Most traders believe beef packers are finding near term feedlot market ready cattle to be tight as excessive heat has limited weight gains and in many cases is finding cattle losing weight the last few weeks. There is constant talk of feedlots moving light weight cattle to market as corn prices go over $7.00 per bushel, but that does not appear to be the case last week.

Like hog futures, we will see a lot of traders buying December and back futures against selling August/October this week as long as corn continues higher. August is a easy short side of these spreads as July is never a good demand month for beef (heat brings less outdoor grilling) and back month cattle futures are an easy buy as traders thing less cattle will be placed into feedlots in the coming months as corn continues marching higher.

We wanted to add a second short unit to August shorts we have been in from the 118.00-119.50 area, but cash cattle trading an unexpected $1.00 higher last week will keep this on the back burner for the moment.

You should liquidate this trade should August cattle futures trade over 122.62 for more than two hours.

Substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authoriz

Livestock Research(24)

Robert Short — 2012-07-06T14:54:00Z

Fri., July 6, 2012 at 9:25 a.m. Central:

Hogs:

We continue to break wholesale pork product as seasonal July 4 business is over. We lost 92 cents on product last night and are now down a rather large $4.79 after losing $5.38 last week. As product goes south pork packers have not been able to break the cash hog market this week as extreme heat has keep hog barn doors closed. This combination now finds packer operating margins at a yearly worst of $22.44 loss per hog. This negative operating margin has traders thinking cooler weather next week will allow producers to move hogs to market and this increased supply with the year’s worst operating margin will see cash hogs break $3 to $4 next week.

We went home last night with August hog futures at a sizeable discount to the lean hog index (10090) of 803 points against a 2-year average negative discount of 76 points. This rather large discount is giving us the early 140-point rally.

Today’s early high for August futures is 9430 and a 200-day moving average will probably find trader selling into the close as they look for lower hog prices next week making the lean hog index work lower. Remember, the lean index is nothing more than cash hogs being divided by hog weight. Traders think cash hogs will decline more than hog weights (due to the heat), thereby taking the lean hog index down.

If you did get short August hog futures on a close under 9475 you still have the 9320 to 9350 area as support with excellent support in the 9100 to 9225 area. I think it will be tough to take August futures under 9100 to 9225 area next week unless outside markets are going sharply lower. I would look to cover in the 9100 to 9350 area. I realize this is a large 250-point range, but the sizeable discount is making it tough to predict a bottom.

Should cash hogs have their expected large cash break next week, helping operating margins, we will be looking to get long August futures sometime late in the week.

Cattle:

No one seems to know why boxed beef is holding as well as it has the last several weeks. Choice boxed beef was actually 35 cents higher last night, but is a small $1.09 lower for the week. Select was $1.52 lower yesterday and down a larger $2.25 for the week. The choice/select spread has choice at a 1,773 premium to select against a 2-year average premium of 753. This seems to indicate wholesale beef is still moving at decent volume in spite of extreme heat limiting outdoor grilling at a time when choice boxed beef at $193.57 is just 2.6% under yearly highs. Yesterday’s 3-day volume of 690 loads was just 6.2% less than last year’s 3-day volume at a time when wholesale choice beef is priced 7.7% over last year.

Beef packer operating margins are close to $60/head positive against a positive $25/head last year and this is getting some trader attention as a positive going forward.

We are short August cattle futures from the $118 to $119.50 area looking for extreme summer heat to further curtail weak July boxed beef interest. June and July are the two worst demand months of the year for beef, but this year we pushed boxed beef higher into the end of June as retailers put off pre-booking spring/early summer grilling needs as they watched cattle futures implode for a 10-week downside correction of 1900 points into the end of April. This late booking of grilling needs has pushed wholesale beef higher into late June (choice beef topped at $197.93 on June 27) and we are now seeing a correction, but at a very slow pace. Boxed beef prices should start a fairly deep correction in the next several weeks. Most years, a 10% to 12% correction takes place.

We are short August in the $118 $119.50 area and would add an additional unit as boxed prices fall away. At present we wait and watch.

I want to raise our exit point to August futures closing over $122.62 for more than two hours.

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 Research(23)

Robert Short — 2012-07-05T14:54:00Z

Thur., July 5, 2012 at 9:25 a.m. Central:

Hogs:

Hog futures closed 2 points lower in July and 10 points lower in August July 3 on light daily volume of 39,000 contracts. Many traders are taking extra days off around the July 4 holiday and making light volume days possible/probable into Monday of next week.

Traders know pork product will be making a sharp, short-term downside correction after going from 20% under last year to 0.5% over last year by Monday 6/25/12. We went home Tuesday with the pork composite index at 9156 or 9.6% under the 6/25/12 high of $101.29. We usually expect a 10% to 15% break in product into the second week of July as holiday business has come to an end.

Six trading days ago, August hog futures were a record 1379 discount to the lean hog index. When traders started to worry that this was out of line, we had a 2-day short-covering rally of 490 points. We are now 650 discount to the index against a 2-year average discount of 412. This is more in line with trader expectations and is not now a point of concern, however it is this discount that usually finds hog futures working higher no later than sometime next week as traders know the lean index usually has a seasonal rally, after this selloff, into mid August.

Most years, the lean index by mid-August will be close to the highs made last week of $103.08. With August hog futures going home Tuesday at 9487 it may be tough to have more than a short-term futures break.

Today and possibly tomorrow, traders will be negative in their thinking as extreme heat makes them worry outdoor grilling has been curtailed in the short term, even through the holiday, and this will limit meat purchase for several weeks during this hot spell.

Wholesale pork product lost a large $5.38 last week and has lost another $3.87 the first two days of this week. Pork loins have had a 18% correction from their $1.67/lb. high made last Friday. Pork butts are almost 8% under last week highs. The biggest thing to remember is that with this rapid downside correction in wholesale pork product, we are seeing daily volume pick up. The USDA data shows 202 loads reported for this Monday and Tuesday and this is 71% over the first 2 days last week and almost 52% reported two day volume 2 weeks ago. There appears to be good retailer support developing for pork product on declining wholesale prices.

If this pattern continues into next week, the downside for this break in hog futures will be limited.

Pork belly prices should be working higher as extreme heat should keep near term BLT season business good.

We talked about getting short August hog futures last week with good technical support in the 9320 to 9350 area and more support in the 9100 to 9225 area as the possible area for a bottom to be made. The daily fundamental news for wholesale pork product will stay defensive into early next week, but I would look to take profits, if you’ve gotten short, in one of the two areas mentioned. A protective buy stop should stay the same at 9537. Longer-term, we will be looking to buy August futures looking for a normal seasonal mid-July product rally that should continue into late August.

Cattle:

We lost $1.41 on choice beef Tuesday and are now $1.44 lower for the week against being 58 cents higher last year. Choice boxed beef at $193.22 is just 2.8% under yearly highs made in late February. Boxed beef volume remains better than should be expected at this price level in a bad demand month like July, not to mention the additional problem this year of extreme heat limiting any near-term grilling.

Cash cattle remain stuck at $116 in Texas and Kansas with Nebraska staying at $116 to $117.

August futures went home this past Tuesday at $119.47 or a premium of 347 points to $116 cash in the southern planes. This larger-than-normal premium basis has turned trader attention to selling August (heat slows grilling interest) against buying December and back cattle futures thinking exploding corn prices will severely limit feedlot placements going forward. Traders have been expecting this spread to work for the last several weeks, but today looks to be the start of this spread until corn makes a high.

We went short August cattle futures in the $118 to $119.50 area last week with your choice on a protective stop at $120.10 or $122.37. If you are still short continue with the $122.37 exit point.

Floor traders are not interested in the long side of cattle futures at this time as we are into early July on extreme heat limiting outdoor grilling. We can keep a larger-than-normal basis premium in futures to cash cattle as extreme heat will slow or reverse cattle weight gains and limit near-term supplies.

Near-term cattle futures will have a 200- to 300-point correction should daily boxed beef volume start lower on declining wholesale prices. So far, the 2.4% downside price correction in wholesale boxed beef has not seen volume decline. We should start to see lower daily/weekly boxed beef volume no later than next week.

Livestock Research(22)

Robert Short — 2012-07-03T14:54:00Z

Tuesday 9:00 AM 7/3/12

HOGS

There is little to talk about at the present time. Traders know product is having its normal correction from July 4^th bookings being over. At the moment people are trying to get a handle on how far product will break. Pork product was $1.58 lower yesterday and is now 7.4% lower from last Monday’s high of $101.29.

Cash hogs will struggle to lose money this week as product declines. Excessive temperatures are keeping hog barn doors closed (producers try to keep interior temperature down) and this lack of daily offerings will probably keep hog prices relatively firm.

Traders always trade what they fear and everyone has product going lower into next week. This thinking coupled with August hog future not being able to close above a 66% retracement of the previous ten week downside correction puts technical bar charts in a negative mode and further helps this early week correction.

The lean-hog-index has lost a small 132 points in the last three days and is being calculated an additional 150 points lower by Thursday. Most years we can expect the index to break into the middle or end of next week as cash hogs decline on product weakness. This year as hogs are being held in confinement buildings (heat) it may be tough to take much out of present $62.00-$69.00 cash hogs. If cash hogs can’t go lower we are left with August hog futures putting additional discount into an already deeply negative number of 679. True, a week ago August carried a huge discount of 1378 points giving us a two day 490 point rally, but if we can’t get the cash hog market going lower into next week the down side of this present selloff will be limited. Remember that most years the lean-hog-index will be little changed from last week’s 103.08 by mid August as product has its mid-July into early August rally. In addition, traders always worry that sometime next week product will turn around to the upside on this week’s light holiday harvest.

We have good technical bar chart support for August hogs in the 9320-9350 area with excellent support in the 9100-9225 area. Getting short August hog futures with a close below Friday’s settlement of 9475

Is probably the right trade to make for this holiday week, but we will need help from the lean-hog-index going lower sooner than later at a faster pace than we have seen in the past three days. If you do try the short side be out should August close above 9537. This is a marginal trade at best, but the only near term trade that can be tried. You may want to watch and do nothing.

CATTLE

Cattle closed over 100 points lower yesterday as they are retreating from being pulled higher last week by hogs two day 490 point short covering rally with a further boost on Friday from most outside markets being sharply higher. Yesterday’s lower market had traders taking profits on this three day higher gift with an open interest decline of almost 3,000 contracts yesterday.

July is always a bad demand month for beef as grilling business subsides. This year the extreme heat is making traders worry that grilling is being curtailed and this worry causes most traders to look at choice boxed beef just 2% under yearly highs as an accident waiting to happen.

Cattle futures were 230-365 points higher last week (pulled by other markets), but cash cattle, normally influenced by futures, traded steady on light numbers. This is causing trader concern that wholesale meat business is slowing at a rapid pace although last week’s box totals were still better than should be expected at this price level. With this week’s excessive heat it would be tough to try the long side of cattle. Like hogs, you should be out or short.

We got short August cattle futures in the 118.00-119.50 area with your choice to liquidate above 120.10 or 122.37. Outside markets did take August above 120.10 last week but its high of 120.62 may find you still short. With this week’s heat causing trader apprehension on near term grilling business going forward and the 330 point basis premium August futures carry to present $116.00 cash cattle there is no reason to liquidate this short position at this time.

Livestock Research(21)

Robert Short — 2012-07-02T14:54:00Z

Monday 9:30AM 7/2/12

HOGS

Hog futures closed 338 higher for the week as most floor traders were short looking for a normal seasonal downside correction to pork product as July 4^th business ended. Unfortunately, we came into Wednesday morning with August futures a record discount to the lean-hog-index of 1,379 points Tuesday evening. For whatever reason early Wednesday chatter centered on the discount with traders running to cover short positions. This short covering gave us a Wednesday-Thursday rally of 490 points and an additional 85 points on Friday as all outside markets were sharply higher.

Open interest for August hog futures declined 5,582 contracts for the week with total hog open interest down 7,134.

This being a holiday week traders know we will back-up over 100,000 market ready hogs. This makes them worry that the cash hog market will come under pressure as the week unfolds. This year that concern is a little less intense as high temperatures are keeping many hop operations from sending hogs to market as opening hog barn doors can lead to further increases in confinement temperature and can lead to weight loss and/or death.

As holiday pork buying came to an end we lost a rather large $5.38 in product last week against $2.53 last year and $1.43 in 2010. Product normally breaks into the second week of July and then goes higher into the first or second week in August.

Friday’s quarterly Pig Crop was considered a little friendly for third and fourth quarter hog numbers as the two lightest weight groups showed a reduction of almost one million hogs that will be marketed during this time period. Other than this all categories were within 1% of analyst estimates. A report like this will be forgotten by late Tuesday.

Many traders are taking Monday and Tuesday off in front of the July 4^th holiday with others taking Thursday and Friday. This will make for light participation and could cause extreme daily moves.

August hog futures closed at 9475 Friday just 20 points from a 66% retracement of the 10 week selloff of almost 1,500 points. Traders found resting stops above this area early this morning with August going 157 points higher in the first 10 minutes. Unless outside markets work sharply higher the next several days it should be tough for hog futures to work higher, although there is probably little on the down side with many traders not here.

I have no short term opinion, but with last week’s rally and going into a holiday hold back of market hogs there is no reason to be establishing long positions. If you do trade this week I would look to the short side assuming August can close below Friday’s close of 9475.

CATTLE

There was little fundamental news for cattle traders last week. Choice boxed beef lost $2.24 for the week with select down a similar $2.36. Choice beef was a small 1.4% lower for June, but at Friday’s close of $194.66 is still just 2% under yearly highs made in late February. June beef demand was much better than most years as retailers put off booking beef in March and April as meat futures imploded with trader worries about $3.98 average gasoline prices curtailing consumer meat purchases. Traders still look for July to be a disappointment for beef sales as seasonally grilling business falls away with a corresponding 10-12% reduction in boxed beef wholesale prices. This year that thinking has intensified as extreme summer heat is thought to have put a bigger dent in beef grilling going forward.

For the most part August cattle futures being 365 points higher for the week came about as they were pulled higher by stock indices being over two percent higher for the week, corn being 14% higher for the week and hog futures being almost 4% higher for the week. Unfortunately we don’t trade in a vacuum and we occasionally have a week like last week. The important thing to take away from last week is we find beef packers not paying higher for cash cattle with a big rally in cattle futures. This tells us packers are a little concerned where July beef business will come from.

Cash cattle were unchanged for the week at $116.00-$117.00 on very light numbers and a 12% reduction from late February $132.00 highs. We normally expect a 12-14% cash cattle decline into late July or early August and we seem to be on this road at present.

Extreme heat causes cattle to lose weight, potentially bullish for August, and at the same time traders know outside grilling slows with a corresponding lessening in demand. One sort of cancels the other in the near term, but closing sharply higher last week from outside markets should find a lack of floor trader buying interest this week with the very real possibility of some selling showing up. Like hogs, this is not the week to try being long unless the market has a serious 250-400 point correction.

We have been short August cattle from the 118.00-119.50 area with your choice to exit, with a loss, at 120.10 or stay using a buy-stop at 122.37. I can’t predict weeks like the one just past where everything goes sharply higher and carries a market we are short with it. If you are still short I would not get out unless the market goes above 122.37 for more than two hours. Beef packers reluctance to pay higher for cash cattle probably means their “push lists” are building as they find summer heat quickly slowing demand. This should be the biggest trader worry this week into next.

Livestock Research(20)

Robert Short — 2012-06-29T14:54:00Z

Fri., June 29, 2012 at 9:30 a.m. Central:

Hogs:

Traders’ worries about the record discount of August hog futures (1,379 on Wednesday) to the lean hog index gave us a 2-day short covering rally pushing August hogs futures up 490 points. Open interest declined a rather large 7,927 contracts on the move. We have a large group of unhappy floor traders this morning.

Most years, we will take wholesale pork product lower into early the second week of July as July 4 business is finished. This year, most traders were short for the product break, but when floor talk Wednesday morning centered on the record discount, everyone ran for the exit!

Last night started to correct product prices. Wholesale pork went down a large $3.41. This makes people believe today is a small downside correction day, as it’s the last day of the week and the quarter and we also have the additional worry about the quarterly pig crop release today at 2:00 p.m.

It’s doubtful there will be much on the downside as commodity markets are going higher this morning -- overnight thinking set in that Europe will still be afloat next week.

Seasonally, traders know we break product into late next week or early the week after. They also know a short holiday harvest week will see pork product going seasonally higher no later than the week after next, and this usually brings traders to the buy side of July and/or August late next week. In other words, this is a small pork product correction that will resume a higher trend soon.

Everyone came into Wednesday morning short, looking for the product break we are now getting. There is no way to know what started Wednesday early morning worry on the record discount basis, but once the market started higher, it would not stop. How do you know when the short covering rally will stop? You don’t.

Losing a large $3.41 on product last night was the probable catalyst this time.

We tried to buy August hog futures Wednesday in the 8800 to 8950 area, but by the time the daily report was posted to the PFGBEST website we’d soared beyond this price area! Forget that price area for initiating a trade. Assuming no outside interference, we will look to the buy side next week, although I have no recommendation this morning. There is a strong seasonal for buying July/August hog futures in early July.

Cattle:

We are short August cattle futures from the $118 to $119.50 area, and want to raise our protective stop to $122.37. If you don’t want to risk this amount continue to use the $120.10 area that we have been using. We can always resell when wholesale beef starts lower.

We have been pulled into this technical selling area because of the 2-day short covering rally in hogs. August cattle futures are 242 higher for the week, but June is 40 lower for the week at $116.50 because cash cattle bids this week are staying $4 lower with Southern Plains bids at $112.

If cash cattle trade in this area late today, August will be a premium of 732 points. This basis premium would be as bad as August hog futures being a record discount this past Tuesday evening.

June has been a surprise to most traders as boxed beef has stayed within 1% of its yearly highs made in late February. We came into June with choice beef at $197.31 and a $10.26 premium to select. Last night choice beef was trading slightly lower at $196.12 but at a $15.79 premium to select. This spread going wider in June is making traders assume decent daily boxed beef business continues. Nevertheless, July heat will usually take beef lower as outdoor grilling subsides and retailer buying has ended. We should be at this juncture this week.

There could be a small amount of selling hog futures against buying cattle early next week as pork product is expected to go lower while wholesale beef is staying steady and this is why you may want to raise your protective stop.

Livestock Research(19)

Robert Short — 2012-06-28T14:54:00Z

Thur., June 28, 2012 at 9:30 a.m. Central:

Hogs:

We talked yesterday about a record discount in August futures and how we would see traders take some of this discount out by no later than next week. Yesterday was that day and futures responded with a short-covering rally (open interest down 4,503 contracts) causing July to close 192 points higher with August closing 270 higher after being limit up earlier in the trading day. This market action will now cause traders to look around at what will be friendly going forward.

The two things that stand out on that front are a still-record discount in August futures to the lean index (103.08) and past history as to where the lean index will be on August 14, the last trading day for August futures.

For the last six years, the average tells us that the lean hog index will be 47 higher by August 14 from this past Monday close. Should this average prove correct, the lean index will be around 102.50. If I throw out the high and low years, the 4-year average has the lean index at 100.60. In either event, August, now trading 9300, is sharply undervalued should these averages prove correct for next two months.

Throw into the pot that August hog futures started higher last year the first trading day of July (1094 discount today) for a 30-day rally of 1,558 points ($6,232.00) and it may be tough to keep futures down in July.)

Pork product still has some upside, after closing a small 10 cents higher yesterday, but is $1.25 lower for the week against $2.02 lower for this week last year. Traders know product will be working lower for the next week or two, but they also know product will usually work higher into the second week of August after a small downside correction from July 4 business being over. Always remember: we are always looking ahead and it is very normal to rally futures in early July as product works lower.

We have a Quarterly Pig Crop report tomorrow at 2:00 Central. The trade expects all numbers will be less than 2% over last year; if that proves correct, the report will be a non-event for Monday trading.

Pork packer operating margin at a negative $2.14/hd. is the best in almost six weeks and goes against last year when the operating margin was a negative $11.42. This will be a small plus going forward.

We talked yesterday of getting long August futures in the 8800 to 8950 area, but by the time my report was posted to the PFGBEST website, the August contract was over this range. I’ll try to find a way to get the daily missives out earlier.

For the time being, the short side of hog futures is for clowns, fools and jugglers. We are up to a major technical bar chart downtrend line today (9290) and this might hold August for a few days as traders know the upcoming July 4^th holiday will back-up 100,000 hogs and might pressure cash hogs next week. We’re going to have to get long sooner than later. Let’s see how the next few days trade.

Cattle:

For the most part cattle futures 115 to 177 higher market yesterday was a sympathy rally with the major upside short-covering rally in hogs! A surprise up-day like yesterday will cause traders to sift through daily/weekly fundamentals to see if anything is changing for the better with one eye while using the other eye to check daily technical bar charts for a possible bottom formation.

Cattle demand fundamentals remain surprisingly decent. With choice boxed beef just .4% under yearly highs and just 2% under all-time highs made for one day in 2003, we have 3-day volume of 600 loads against 623 last week and 612 last year. It’s all the more surprising as wholesale beef is almost 11% over last year with beef at retail still 6% over last year. Over the last two years, the market has paid special attention to beef exports, but traders’ attention spans are fleeting…and beef exports are not now on trader radar screens. There is zero talk about beef exports on the floor of the Mercantile Exchange.

Left with no explanation for the rather sizable wholesale beef rally, the market has psychologically assured itself that beef prices are an accident waiting to happen. Traders can wait another week for negative beef news to show, but should boxed beef prices and volume stay strong, the market will start higher.

A normal (whatever that is) seasonal has cattle futures making a bottom in late July and/or early August as traders, looking forward, know back-to-school August retail interest will start end meats (roasts) higher taking cash cattle along for the ride.

For a long-term trade (assuming we can get a early lead), we want to buy April 2013 cattle futures as already tight feeder cattle supplies are forced into feedlots in July and August from high priced corn. There remains a constant belief that April cattle could go into the $140 area on sharply reduced Q3 placement numbers.

In the short term, a sale of August in the $118 to $119.50 area is possible using a protective stop above $120.10.

Livestock Research(18)

Robert Short — 2012-06-27T14:54:00Z

Wed., June 27, 2012 at 9:30 a.m. Central:

Hogs:

Trading hog futures into next week is very simple. If you believe a seasonal correction in pork product is likely into late next week, one that can get August hog futures under major chart support in the 8770 to 8820 area, you should sell today’s short-covering rally! Remember that August futures closed yesterday with a record discount to the lean hog index of 1379 points against a 3-year average discount of 240 points.

Last year, the lean index collapsed 367 points next week, but August futures closed 302 higher for the week as traders became nervous about the extreme 1000-point discount that August had at this time a year ago. Traders know the holiday harvest next week will almost always see a bid put into product the following week; and, as they are always looking ahead, they are in no hurry to establish short positions. This year, with August at a 1379 discount (last year a discount of 1000) that worry is amplified. In addition, pork packer operating margins are the best they’ve been in the last five weeks. We came into this morning with a negative $3.10/head margin while averaging a negative $14.12 last week and a negative $14.26 two weeks ago.

In short, the bad pork product news for the next 10 days has been put into the record discount of 914 points in July hogs and 1379 points in August. At this time you can only be long or out of hog futures. Look to buy August in the 8800 to 8950 area.

Cattle:

For whatever reason boxed beef prices are staying higher longer than should be expected. Choice boxed beef was $1.11 higher yesterday at $197.74. This puts choice a small 91 cents higher for the week against being 60 cents higher last year, but this year we have choice at 10.6% higher than last year. In addition, the choice/select spread remains wide at $17.52 ($5.32 last year) and this usually means middle meat business is staying strong for the summer grilling season.

Corn has advanced $1.50/bushel in the last eight days. If rain continues at deficit levels going forward and corn continues higher, we are going to hear additional trader chatter of forced liquidation from feedlots. Cattle feeders are already losing over $200 for each head of cattle sold and higher feed costs are going to see this number get worse. The only small plus is that present beef packer operating margins are about $50/head and this might make packers a little less inclined to try and hammer present $116 cash prices.

Temperatures in the Southern Plains the last several days have been in the 95- to 115-degree area and this will see cattle losing weight as they reduce feed intake. Most years, this is a short-term friendly influence on the front futures contract, but since cattle are about 20 pounds heavier than last year, traders are not taking this as a reason to be long June.

Many traders believe near-term grilling business has slowed as consumers stay away from grilling when temperatures go above 90 degrees. This, in turn, has traders watching daily beef volume levels. So far there has not been an appreciable reduction in load counts.

Be sure and be out of your short June cattle by Friday (it’s the last trading day.)

I’m looking to sell August cattle futures in the $118 to $119.50 area and may have to lower this buy area in the next few days. We should look to buy April 2013 cattle futures in July or early August depending on boxed beef prices going forward and corn prices into mid-July. Should corn continue higher, feeder cattle prices will continue to collapse and February/April feedlot offerings will be curtailed.

Livestock Research(17)

Robert Short — 2012-06-26T14:54:00Z

Tue., June 26, 2012 at 9:30 a.m. Central:

Hogs:

Hog futures closed 157 lower in July and 222 lower in August as psychology always shifts to the negative side the last part of June when traders anticipate July 4^th business being booked. You knew this from a number of recent daily reports!

Last Friday’s Cold Storage helped as June 1 pork stocks of 636 million pounds was a record.

Overnight fundamentals are still OK as pork product was 48 cents higher and the lean hog index advanced another 59 points to 102.01. In addition, pork packer operating margins are now just a small negative of $2.38/head. This is the best operating margin since May 14.

Traders now expect pork product to have a correction after the pork carcass composite value has risen almost 30% in the last four weeks. There are few reasons being put forward for this rather large product rally, other than retailers waited later than normal for booking early summer business. Some traders now think retailers have booked pork for most of July.

We tried to get short August hogs in the 9350 to 9450 area, but a 9350 high gave us little chance to establish a short position. With August going home last night at a 1286-point discount to the lean index it now becomes a tough trade to make at the present price.

Hog futures will struggle to hold a rally into Friday as traders always expect to see a downside correction in product into early July. With the extreme discount futures have to the lean index the bulk of this week’s negative thinking could have been put into yesterday’s 157 to 222 lower market.

Should corn continue higher on lack of rain we should see traders selling front month hogs against buying 2013 contracts, using the logic that high feed prices limiting breeding rates. The problem is, these spreads have already moved 200 to 300 points in the last 4 to 5 days. I have no idea as to a relatively safe trade in hog futures at this time. Sorry.

Cattle:

Cattle traders know June and July are the two worst demand months for wholesale beef. This year, with choice beef just 1% under late February highs, this thinking has a strong fundamental basis. The one offset to this belief that the market will trend lower into late July is that gasoline has managed a 50 cent/gallon correction in the past 12 weeks. How much consumer beef buying will result from this price decline remains to be seen.

Last night, choice boxed beef declined 20 cents with select down 6 cents. Yesterday’s beef volume of 203 loads was decent - we moved 182 loads last week vs 152 loads in 2011.

Boxed beef is staying relatively strong for the time of year and price level. Traders still expect a rather large downside correction into late July. Most years we see boxed beef declining 10% to 12% into mid-summer.

Cash cattle at $116 are down 12% from the $132 highs in late February and this is in line with a normal 12% to 14% decline we usually see unfold.

The last leg of this futures correction should unfold as wholesale beef now works lower. The one worry at present is that boxed beef has stayed at this elevated level longer than expected. It is possible that gasoline being down 50 cents/gallon is seeing some increased consumer demand. Beef exports are not being talked about by most traders at this time.

We have been short June cattle in the $118 to $120 area and added a second unit around $118.20. We talked about taking profits in front of last Friday’s Cattle On Feed Reoprt. If you are still short be sure to cover the position by Friday (last trading day).

We will be looking to get long April 2013 cattle futures sometime in July. We will try and make this a long-term trade with many traders thinking we can take the present $128 price into the low $140 area in the April contract. This thinking comes about as traders know the drought affecting the southern plains has diminished feeder cattle supplies. This thinking will only get stronger should corn continue higher on lack of rain. We could see a 4- to 6-week increase in feedlot placements into feedlots (assuming continued collapse in feeder prices) in July and early August, but this should further clean up limited feeder supplies going forward.

In the short term, we look to sell August cattle futures in the technical area of $118 to $119.50.

Livestock Research(16)

Robert Short — 2012-06-25T14:54:00Z

Mon., June 25, 2012 at 9:30 a.m. Central:

Hogs:

We continue to put money on pork product at an unprecedented rate. Friday we put $2.35 on product and closed the week with a very big increase of $6.69 against putting $3.29 on product last year. We are now almost 2% over last year on the pork product composite index against being 20% under year ago prices in early May. While harvest levels are seasonally declining, the percentage decrease really doesn’t justify the large product increase. Exports are OK, but nothing special, although U.S.D.A data runs six weeks late.

Friday’s Cold Storage Report was a bit better than expected. Pork stocks at the end of May were 636 million pounds, or 11 million under the average analyst estimate. Traders are not excited by this number as stocks are 16% over last year and 20% over the 5-year average. We are also seeing record stocks for June 1.

Most traders expect any early rally today to have a tough time holding as pork product is talked being at its highs for June. There is constant floor trader chatter that product is being traded at lower money and not being reported.

August hog futures went home at a very large, 1005-point discount to the lean hog index (101.42). Last year, the August discount last Friday was 1010 points, so this is not quite as bad as it looks. More often than not, we will put a discount in summer hog futures by late June as traders always look for a seasonal downside correction in pork product that usually carries through till July 10. August 2011 futures started a 700-point break last year as of about June 21, despite their large discount to the lean hog index. Negative psychology usually trumps the extreme discount.

We have been looking to get short August futures in the 9350 to 9450 area with last week’s high of 9350 giving little chance to establish a short position. With the large discount, I don’t want to chase hogs lower.

If you do want to try the short side this week, you must use a close over 9350 as your exit point. You should be out or short, but I think the discount is a bit large at present.

Cattle:

Friday’s Cattle On Feed was a tad on the negative side. Placements into feedlots were 1% over the average analyst estimates and May feedlot sales were 4% less than the average analyst estimate. Traders decided this was a slightly negative report and went home looking for a 20- to 40-point lower opening.

The monthly Cold Storage Report put beef stocks for the 1^st of June at 498.6 million pounds. This was 11% over last year and 21% over the 5-year average and was considered neutral to slightly negative.

June futures are 65 lower early this morning from these two reports getting help from sharply lower stock indices.

Choice boxed beef was 31 cents lower Friday and $1.04 lower for the week against being $5.25 higher for this same week last year. With boxed beef at about 1% lower than our late February high of $198.80 we’re starting to see weekly volume slow. Beef volume last week of 944 loads was 18% under last year and 23% less than in 2010. Traders know June and July retail interest is limited as grilling business is usually finished in early May. This year, that business started late, but should be about finished.

Cash cattle for the week finished $3 lower in Kansas and Texas at $116. Nebraska dressed (carcass) cattle traded $3 to $4 lower although beef packer operating margins remain good at a positive $47 per head.

We were short two units of June futures going into Friday. The choice was yours as to taking profits going into major monthly reports. If you stayed short there is no need to cover. If you got out we will look for a place to return to the short side. Day-to-day fundamentals should be disappointing this week.

From a technical bar chart perspective, we are holding a 50% retracement of the last 19-day rally. This is decent technical support and I need to see how we handle this chart area.