PFGBEST Livestock Market Comment

CHICAGO - Mar 12/10 - SNS -- Following is the livestock futures comment from PFGBEST Research.

Livestock Statistics (week ending 03/06/10)

HOGS: (week ending 03/06/10)

Weekly Statistics

1. Pork Product (wholesale)

   1. Loins 111

      1. Last week 115
      2. Last year 92

1. Butts 85

Last week 84

                                                                                                                    ii.           Last year 77

c.           Hams 78

                                                                                                                        i.           Last week 78

                                                                                                                    ii.           Last year 45

d.         Bellies  (bacon) 92

                                                                                                                        i.           Last week 90

                                                                                                                    ii.           Last year 75

II.                               Cash Hogs

a.         Peoria $48.00

                                                                                                                        i.           Last week $47.00

                                                                                                                    ii.           Last year $35.00

b.         Zumbrota $48.00 (St. Paul)

                                                                                                                        i.           Last week $48.00

                                                                                                                    ii.           Last year $38.00

III.                         Hog Weight

a.         269.2 (pounds)

                                                                                                                        i.           Last week 268.4

                                                                                                                    ii.           Last year 267.5

IV.                       Lean Hog Index

a.         7238

                                                                                                                        i.           Last week 6912

                                                                                                                    ii.           Last year 5844

V.                             Pork Price (13 cut retail average)

a.         $2.24

                                                                                                                        i.           Last week $2.09

                                                                                                                    ii.           Last year $2.25

VI.                       Packer Operating Margin

a.         +$1.70

                                                                                                                        i.           Last week +$2.12

                                                                                                                    ii.           Last year -$19.64

VII.                 April Hog Premium/Discount to Lean Hog Index

a.         +72

                                                                                                                        i.           Last week +368

                                                                                                                    ii.           Last year +406

April hog futures closed the week at 7310 ' up 30 points.   June futures closed 47 points higher at 8187.   July lean hog futures closed 148 points higher for the week at 8195.

Open interest was up 12,363 contracts for the week' now at 195,728.   Average daily volume of 34,000.   This volume was 26% over the previous week and 79% over two weeks ago.

For the five-day period ending 03/03/10, speculative funds added a large 8452 contracts to their net longs now 29,368.   Adding options we find speculative funds adding 4027 to their long positions ' now at 43,018.   Non-reportable position holders decreased their net short positions by 333 contracts.   This groups now a net short 9623 positions.

'Managed money' accounts added 3141 contracts to their net long position of 31,045.

Commercial accounts added 10,714 to their net-short positions ' now at 33,395.

'Battle lines' are being drawn in hog futures this week.   After a four week hiatus 'funds' are buying hog futures.   This buying is much lighter than what we have seen in cattle over the last five weeks but it does appear funds may be starting a 'buying' program.   This potentially bullish scenario is offset by floor traders increasing their 'short' positions over the last three weeks.   The combination of large fund buying and floor selling gave us a 6.7% increase in open interest and a 26% increase in daily volume from the prior week and 79% over two weeks ago.

Floor traders are looking for the seasonal mid-lenten pork product break.   They are, also, aware cash hogs gain in February was $5.00 per 100 pounds.   This was the second largest gain in the last ten years.   In addition, wholesale pork prices gained over $4.00 for the month of February on a ten year average of $2.13.   With cash hogs and pork pricing advancing by these rather large amounts, floor traders believe we have temporarily priced pork product too high for consumer meat-case purchases.   This belief is helped by the volume of weekly pork trade reported to the USDA   Last weeks reported volume of 288 loads was 18% under the prior week; 26% under two weeks ago and 27% under last year.

Another potentially negative for pork pricing is the ongoing U.S.-Russia talks on poultry.   The second round of bilateral talks ended with no resolution.   U.S. poultry is still being put into cold storage.   It remains to be seen how long this can continue before poultry prices fall ' becoming a price depressant on pork.

Hog weights have not been declining as in their seasonal tendency.   This week saw hog weights increasing .8 pounds.   This contra-seasonal increase has traders worried January light kills were weather related.   As these hogs gain weight they will be coming to market in greater numbers ' thereby depressing prices.

This coming week is going to be too tough to call.   Funds show a remarkable ability to push their positions for much longer than fundamentals dictate.   We are at this crossroads.   March corrections should be bought as light cold storage stocks and Russia resuming buying of U.S. pork should take our summer 'lean-hog-index' to 8000-8200 (now at 7238).

CATTLE: (week ending 03/06/10)

Weekly Statistics:

I.                                     Cash Cattle

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

                                                                                                                        i.           Last week $91.00-$92.00

                                                                                                                    ii.           Last year $82.00

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

                                                                                                                        i.           Last week $144.00-$145.00

                                                                                                                    ii.           Last year $130.00

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

a.         Choice $149.59

                                                                                                                        i.           Last week $149.96

                                                                                                                    ii.           Last year $135.06

b.         Select $148.11

                                                                                                                        i.           Last week $149.56

                                                                                                                    ii.           Last year $134.57

III.                         Hide and Offal

a.         $9.88

                                                                                                                        i.           Last week $9.80

                                                                                                                    ii.           Last year $6.29

IV.                       Retail Beef Price (15-cut average)

a.         $3.56

                                                                                                                        i.           Last week $3.79

                                                                                                                    ii.           Last year $3.62

V.                             Packer Operating Margin

a.         +$27.85

                                                                                                                        i.           Last week +$14.35

                                                                                                                    ii.           Last year -$31.55

VI.                       April Cattle Futures Premium/Discount to Panhandle Cash Cattle (Friday Settlement)

a.         +$0.95

                                                                                                                        i.           Last week -$0.08

                                                                                                                    ii.           Last year +$1.52

April cattle futures closed the week at 9295 ' up 103 points.   June futures closed up 117 points at 9157.   August closed 9020 ' a gain of 138.

Open interest increased 3.6% to a record 325,681 contracts.   Volume averaged 43,000 daily up from a daily average of 36,000 the previous week.

Speculative funds increased their net-longs by 6223 contracts ' now long 86,320 positions.   'Futures/options' position holders increased their net longs by 8223 contracts.   This group is now long a record 110,610 positions.   'Managed money' accounts increased their net longs to 99,872 contracts ' an increase of 8082 for the week.   'Index' (long only) funds increased their long exposure by 2100 to 133,880 positions.   Commercial accounts added to their 'short' positions by 8884 ' now net short 63,791.   Non-reportable are a net short 46,820 ' an increased of 1660 positions for the week.   Funds continue to hold record 'long' positions in all categories.

Cattle futures experienced a mild rally this week of 100 to 140 points.   The bulk of this was caused by cattle-hog spreads.   A 19 day break of 62% was viewed by the floor as a correction to be bought.   The April cattle-April hog spread gained 73 points for the week while the June cattle-June hog spread gained 75 points.   Most year cattle will gain 200-300 points on hogs during the month of March.

Cash cattle closed the week steady to down $1.00 from the previous week.   Boxed beef total loads, reported to the USDA were 3.8% higher than the previous week ' but 23% below year ago levels.   It appears we are seeing retail and food service (restaurants) buyer reluctance at this $150.00 level (11% over last year).

Beef exports were the second lowest of the year at 5200 tonnes.   This was 35% under the previous week and down 48% from the four week average.

Cash cattle, at $90.00-$92.00, still have the potential to advance $1.00 to $3.00 over the next month.

Retail buying for the 'grilling' season usually starts the last week of March and continues through May.   This buying of 'middle meats' may have started early as the primal rib market was $1.00 to $5.00 higher for the week.   The primal loin market was steady while 'end-meat', chucks and rounds were down $1.00 to $3.00.   It is this 'middle meat' buying for steak grilling that gives the cattle cash market its final rally into mid-April.   Remember retailers buy their beef product 2 to 4 weeks in advance.   This 'middle meat' buying should over by the end of April.

Cattle future traders, aware of the above, look to sell June futures during March rallies.

Funds with record long positions will start to 'sell-out' their longs before first notice day April 1^st.

June cattle futures should be sold on rallies into the end of March.   I continue to think late second quarter cash cattle pricing of $87.00-$89.00.

PFGBEST Research Team

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

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