PFGBEST Livestock Market Comment

CHICAGO - Feb 8/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.

Weekly Livestock Statistics 1/30/10

HOGS:   (WEEK ENDING 1/30/10)

WEEKLY STATISTICS

1. PORK PRODUCT (Wholesale)

   1. Loins 109

      1. Last week 125
      2. Last year 98

   2. Butts 74

      1. Last Week 77
      2. Last year 73

   3. Hams 65

      1. Last Week 72
      2. Last Year 39

   4. Bellies 92 (Bacon)

      1. Last Week 92
      2. Last Year 75

      1. Last Week 41

   5. Zumbrota 42 (St. Paul)

      1. Last Week 40

2. CASH HOGS
3. Peoria 41
4.                                                                                                                         ii.           Last Year 35
5.                                                                                                                         ii.           Last Year 36
6. PORK PRODUCTION 435.1 (Millions of pounds)
7. Last Weed 440.9
8. Last Year 459.2
9. HOG WEIGHT 269.9 (pounds)

   1. Last Week 270.7
   2. Last Year 269.0

10. LEAN HOG INDEX 6899

    1. Last Week 7014
    2. Last Year 5848

11. PORK PRICE $2.06 (13 Cut Retail Average)

    1. Last Week $1.96
    2. Last Year $2.32

12. OPERATING MARGIN +$7.42

    1. Last Week +$16.86
    2. Last Year -$12.20

February hog futures closed the week at 6650 ' a decline of 325 points ($1,300.00).   April futures were down 337 points at 6860.   June futures down 263 points at 7672.

Speculative funds and large traders decreased their long positions by a small 636 contracts ' still a net long of 31,177 contracts.   Adding options, this group of traders decreased positions by 2,154 contracts to a net long of 42,454 contracts.   Non-reportable position holders increased 'futures-only' short positions by 501 contracts ' now net short 6,953 contracts.   Adding options ' non-reportable position holders liquidated a net 793 long contracts ' now a net short 9,369 contracts.   Managed-money accounts lightened up on net long positions by 2,878 contracts ' now net long of 34,407 contracts.   It appears from the above, funds were worried about a near-term product break, thereby liquidating a small number of long contracts.   Going into this week found net-long positions at record highs.

Coming into this week, we had put a tremendous amount on pork product over a 6-month period.   As of last Friday, our pork product cut-out was 7718 ' the highest since 1997.   The last two weeks found talk of imported hams selling for less than domestic hams.   There was, also, talk of using beef trimmings in place of pork trimmings ' where possible.

In spite of a friendly December cold-storage report, the market became concerned over Russia not allowing U.S. pork imports on the pretext that our poultry was unsafe due to a chlorine-rinse before shipment.   The immediate worry became, we would be forced to put more poultry in the domestic pipeline.   This is a palpable concern as Russia buys 25% of our poultry production (1.8 billion pounds).   In addition, February is usually a light demand time for beef and pork as Christmas credit card bills are paid.   We have the 40-day Lenten religious service starting February 17.   That is always a concern to 'bulls.'

This week found a $8.02 break in the pork product index (-10.4%).   While this is a large one week decline, we are still higher than anytime in 2009.   It will be impossible to forecast the pork product bottom.   We will wait for pork brokers to comment on possible bottoms.

There is an old saying in the futures market, 'It takes buying and lots of it to put a market up;' it takes a mere lack of buying to put a market down.'

Technically speaking, this correction could carry somewhere between 6150 and 6430.   I still expect summer highs in the lean-hog index, now at 6899, of 8000-8250.

CATTLE:   (WEEK ENDING 01/30/10)

WEEKLY STATISTICS:

1. CASH CATTLE:

   1. Texas/Oklahoma ' Not tested (U.S. dollars per 100 pounds)

      1. Last Week $86.00
      2. Last Year $80.50

   2. Nebraska $136.00 (Carcass hot-weight)

      1. Last Week $138.00
      2. Last Year $130.00

      1. Last Week $143.21

   3. Select $137.76

      1. Last Week $139.23

      1. Last Week $9.41

2. BOXED BEEF (Value reflects U.S. dollars per 100 pounds)
3. Choice $140.73
4.                                                                                                                         ii.           Last Year $141.83
5.                                                                                                                         ii.           Last Year $138.90
6. HIDE AND OFFAL $9.53 (5 Day Average)
7. Last Year $6.88
8. RETAIL BEEF PRICE $3.83 (15-cut average)
9. Last Week $3.44
10. Last Year $3.85
11. BEEF PRODUCTION 484.2 (millions of pounds)

    1. Last Week 515.6
    2. Last Year 497.6

12. PACKER OPERATING MARGIN +$15.75

    1. Last Week +$5.50
    2. Last Year  +$49.60

February cattle futures closed the week at 8580 ' a decline of 82 points ($328.00).   April closed down 118 points at 8937.   June cattle futures down 48 points at 8782.

Funds and large traders continue to add to their long positions at a fairly rapid pace.  Futures-only speculative funds and large traders added 4152 contracts to the long side.   They are now a net long 71,807 positions.   Coming into February, they were net-long 37,869 contracts (+90%).   Futures and options positions shows this group adding 1,873 positiions for a net long of 88,497 contracts.   This is an increase of 32,632 contracts (58%) for the month of January.   Managed money positions were increased 3,524 contracts for the week.   They are now a net long 70056 positions, and increase of 70% for the month of January.   These positions are very close to record-long positions.   Open interest was up 1,412 contracts for the week at 283,947.

In spite of a large hog sell-off this week, cattle futures had a small 'break' of 80 points.   On the negative side of the ledger is the continued worry of a sluggish economy with high unemployment; less than exciting beef exports; and the near-term worry of lost poultry sales to Russia pressuring our domestic beef supply.   The positive side of our ledger includes:   feedlot cattle supply at seven-year low ' with placements into feedlots, lowest since 1998.

Near-term cattle slaughter has been adequate to keep feedlot numbers very current.   In addition, winter weather has seen a more than normal weight decrease producing less than expected weekly beef tonnage.   Added to this is the beef-to-pork ratio still favoring beef.   The USDA has increased 2010 exports to be 8% over 2009 levels ' an increase of 5%.

Winter weather the past six weeks, has helped to give fewer cattle placed against the 2^nd quarter.   Feedlot supplies will decline more than seasonally through the second quarter.   Beef demand increases into the spring (grilling season).   These two 'fundamentals' will give us spring highs of $90.00-$93.00.   April cattle at 8875 are a 'buy' on February 'breaks.'

Cash feeder-cattle have a strong tendency to break 6% to 8% over the next several months.   Selling feeder futures against long cattle futures should be looked at.

We have talked many times on doing long live cattle futures against short hog futures.   If this spread corrects during February, it should be looked at.

PFGBEST Research Team

Phone: 800-361-6855 or 319-553-2181

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