PFGBEST Livestock Market Comment

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

Livestock Statistics- Week Ending 2-27-10

HOGS: (week ending 02/27/10)

Weekly Statistics

1. Pork Product (wholesale)

   1. Loins 115

      1. Last week 106
      2. Last year 93

1. Butts 84

Last week 80

                                                                                                                    ii.           Last year 72

c.           Hams 78

                                                                                                                        i.           Last week 70

                                                                                                                    ii.           Last year 45

d.         Bellies  (bacon) 90

                                                                                                                        i.           Last week 90

                                                                                                                    ii.           Last year 73

II.                               Cash Hogs

a.         Peoria $47.00

                                                                                                                        i.           Last week $46.00

                                                                                                                    ii.           Last year $33.00

b.         Zumbrota $48.00 (St. Paul)

                                                                                                                        i.           Last week $45.00

                                                                                                                    ii.           Last year $35.50

III.                         Pork Production (millions of pounds)

a.         437.3

                                                                                                                        i.           Last week 438.6

                                                                                                                    ii.           Last year 444.2

IV.                       Hog Weight

a.         268.4 (pounds)

                                                                                                                        i.           Last week 268.4

                                                                                                                    ii.           Last year 267.4

V.                             Lean Hog Index

a.         6912

                                                                                                                        i.           Last week 6716

                                                                                                                    ii.           Last year 5651

VI.                       Pork Price (13 cut retail average)

a.         $2.09

                                                                                                                        i.           Last week $2.06

                                                                                                                    ii.           Last year $2.26

VII.                 Packer Operating Margin

a.         +$2.12

                                                                                                                        i.           Last week +$3.90

                                                                                                                    ii.           Last year -$1.86

VIII.           April Hog Premium/Discount to Lean Hog Index

a.         +368

                                                                                                                        i.           Last week +249

                                                                                                                    ii.           Last year +439

April hog futures closed the week at 7280 ' up 315 points ($1260.00).   June futures closed 220 points higher at 8140.   July lean hog futures closed 160 points higher for the week at 8047.

Open interest was up 9013 contracts for the week' now at 183,365.   Average daily volume of 27,000.   This was an increase of 42% from the previous week's average of 19000 per day.

For the five-day period ending 02/23/10, speculative funds and large traders added a net 928 contracts ' now at net long 20916 positions.   Non-reportable position holders added a net short by 569 contracts ' now a net short 7480 contracts.   Adding options finds speculative funds and large traders adding a net 2060 positions to their net longs ' now at net long of 32636 contracts.   Non-reportable positions added to 'shorts' by at net 871 contracts ' net short 9956 contracts.

'Managed money' accounts added a large net long contracts of 4621 ' now a total net long of 27904 contracts.

Funds came into this week doing very little over the last four weeks.   Floor traders were busy establishing 'short' positions at a 7050 chart gap.   They were looking for the normal seasonal break into the first week of March.   Unfortunately for 'short' position holders, the monthly 'cold storage report' showed January 31^st stocks of 495.6 million pounds, 18.4% under last year, and 8% under the last five year average.   In addition, January pork exports were 8% over December 2009 and second highest for any month since 2008.   As 'shorts' began to cover the USDA reported Canadian pig imports running 18% under lat years pace.

The final nail in the 'bears' coffin came on Friday as the USDA reported January hog slaughter down 9.4% from December 2009 and down 10.4% below January 2009.   This gave us pork production down 8.9% from December and down 10.8% from January of last year.

Loins are on a two week rally of 11 cents and find themselves 24% over last year.   Hams have enjoyed a two week 10 cent rally ' now 73% over last year.   There was late Friday talk of a 10-15 ham break coming late next week or the following week.   Loins are now called either side of steady for the next two weeks.   Butts have been quiet all year and should remain near their 84 cent price over the next two weeks.   Bellies at 90 cents (23% over last year) could advance five cents over the next two-week period.   We should expect to see a decline in the 'lean-hog-index' of 200-300 points and a corresponding small break in futures.

I still look for the summer hog index to advance to 8000-8200 (now at 6912).   Small hog corrections should be bought.

There are three things we must constantly watch.   Did the adverse winter back-up hogs and when weight ready will they pressure hog cash and futures.   Will Russia allow poultry and pork imports to resume?   So far poultry prices have stayed relatively untouched from the Russian ban.   The problem being poultry dark meat (leg quarters) cold storage stocks have increased 23% since the end of December.   Russia is our 5^th largest market for U.S. pork.   In spite of the January 1^st ban, pork shows no adverse pricing.

CATTLE: (week ending 02/27/10)

Weekly Statistics:

I.                                     Cash Cattle

a.         Texas/Oklahoma $91.00-$92.00 (U.S. dollars per 100 pounds)

                                                                                                                        i.           Last week $92.00

                                                                                                                    ii.           Last year $82.00

b.         Nebraska $144.00-$145.00 (carcass hot-weight)

II.                               Boxed Beef (value reflects US dollars per 100 pounds)

a.         Choice $149.96

                                                                                                                        i.           Last week $146.71

                                                                                                                    ii.           Last year $132.71

b.         Select $149.56

                                                                                                                        i.           Last week $144.83

                                                                                                                    ii.           Last year $130.55

III.                         Hide and Offal

a.         $9.80

                                                                                                                        i.           Last week $9.68

                                                                                                                    ii.           Last year $6.54

IV.                       Retail Beef Price (15-cut average)

a.         $3.79

                                                                                                                        i.           Last week $3.62

                                                                                                                    ii.           Last year $3.87

V.                             Beef Production (millions of pounds)

a.         488.1

                                                                                                                        i.           Last week 478.2

                                                                                                                    ii.           Last year 489.5

VI.                       Packer Operating Margin

a.         +$14.35

                                                                                                                        i.           Last week +$15.95

                                                                                                                    ii.           Last year -$22.10

February cattle futures closed the week at 9030 ' down 247 points.   April closed down 138 points at 9192.   June futures down 47 points at 9040.

Open interest increased 4.3% to 314,286 contracts (July 2008 record of 318,000).   Volume averaged 36,000 contracts versus the previous weeks 43,000 daily average.

Speculative funds and large traders increased their 'futures/options' net longs by 3247 contracts.   This 'futures/options' fund buying was offset by commercial selling of a net 3126 positions.   Commercials are now a net short 54,906 contracts.   Non-reportable positions did little, increasing shorts by a net 122 contracts ' now net short 45,160.   'Managed money' traders increased their net longs by 3829 contracts.   This puts their net long positions at 91,790 ' a record.   Long only index funds decreased 'longs' by 488.   This group now a net long 131,780 positions ' 36% of total long 'open interest.'

Cattle futures experienced a quiet week except for Friday.   Long positions holders elected to 'sell-out' their long positions in February futures.   February closed 9190 on Thursday and 'longs' decided not to take delivery on this last trading day for February.   Deliveries against February futures can be made through the 5^th business day of March.   Traders are worried that cash cattle will have a quick two or three cent break into the middle of March.   No one was willing to take a 9190 futures cattle if cash would be at 9000 by the second week of March.

Reduced slaughter weights (adverse weather/and a bad beef cut-out) 'propped-up' boxed-beef for the third week.     We have put +12.06 on the price of boxed-beef over the last three weeks while last year saw a decline of $7.03.   We are 13% over last year's price of $132.71.   It appears, in the short term, we have priced beef too high for demand to continue.   Boxed-beef reported to the USDA were only 998 loads for the week, volume for the last three weeks reported at 3407 loads ' 25% under last years depressed volume of 4540.   As beef packers 'push-lists' (list of unsold product) increase they will cut harvest rates to compensate.   This, in turn, will back-up cattle.   Add winter weather cattle finally showing up to this short term harvest reduction and we are probably looking at cash cattle highs of $92.00-$94.00 into the first or second week of April.

Cattle futures (forward looking) will anticipate this top two to four weeks in advance.   Last weeks reduction in average daily trading volume gives us a clue that futures tops are close.   I still expect a second quarter cash cattle low of $87.00-$89.00.

PFGBEST Research Team

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

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