by Bob Short, PFGBEST
1-800-280-4566
rshort@PFGBEST.com
Monday, February 06, 2012 at 12:38 PM
We put 15 cents on pork product and were up $1.82 for the week. This was the best product week of this young year and with a lean-hog-index up 72 for the week (8807), we managed to close February hog futures 85 higher for the week and April up 155. The biggest reason for this week’s up in pork product this week is the last two weeks reduction in harvest as packers are trying to get their operating margins back to the positive side.
Weekly pork volume is staying good as we moved 431 loads against 472 the week before and just 299 loads last year. Pork product usually starts to decline by the third week of February as retailers are back to booking beef for mid to late March southern states grilling season.
Most traders attribute Friday’s last hour selloff in futures as nothing more than end-of-week profit taking.
From a seasonal standpoint we usually find April futures making a February high around the 10th of the month. Traders know beef demand picks up at the expense of pork and start to take some of the premium out of April futures. This year we have little premium to take out as we went home this past Friday with April just 85 premium ( lean index at 8897) against a 3 year average of a positive 420.
Another reason for traders not trusting further hog futures rallies is that last week we produced 444.6 million pounds of pork and this was 4.4% over last year as harvest was up 3.8% for the week with hog weights 2.3 pounds over 2011 levels.
Last Thursday April hog futures made a 50% retracement of the October 19th-December 16th 800 point downside correction and this should be the high for the month. Should daily pork product volume and/or pricing start to decline from present levels we would look to be short April hogs in the 9050-9200 area looking for the normal seasonal psychology shift to favor beef over pork in late February into March.
We are short three units of April hog futures against long June and continue to look for a spot to add an additional unit. We missed last week.
We are long two units of June hogs against June cattle and waiting for the outcome. We are about “even” for the trade.
This past week was rather quiet for cattle futures as they closed 108 lower in February and 105 lower in April. Choice box beef lost $1.01 for the week and late Friday carcass cattle sold $2.00 lower in Nebraska at $198.00. Southern plains cash cattle is staying at $123.00-$124.00, but last week’s U.S.D.A. reported negotiated volume of just 62,000 cattle should see packer interest early this week or traders will worry cash will be going lower into next week.
Projected mid- week snow storms were not as bad as expected and southern planes rains were, also, less than advertised. This took some of the late week buying pressure off futures.
Beef packers are slowing weekly harvest levels as they try to get very negative operating margins (Friday-negative $87.65 per head) back to a positive level. Last week they lowered the weekly harvest 3.1% from the previous week and 6.1% from last year. This lighter harvest produced 3.1% less beef than the previous week and 5.8% less than 2011
Cattle futures are making new contract highs in August and later contracts as traders know we will be producing almost 5% less beef this year. Front month cattle continue to struggle with the constant worry that beef exports are not keeping pace with last year (higher U.S. dollar). This worry continues as last week we found export beef sales for the week ending January 26th just 4,100 metric tonnes. This goes against a four week average of 14,167 metric tonnes and brings year-to-date sales 5.6% lower than this same time period in 2011.
From a seasonal standpoint January and February are always “buy the bad news” months as traders know forward bookings for early southern state grilling season business kicks in by mid to late February. Assuming outside markets stay quiet we would look to buy April futures in the 125.50-126.50 area. Sooner than later should weekly box beef volume start higher. Last week might be a early clue to upcoming beef interest by retailers as weekly reported volume of 1130 loads was 22.2% higher than the previous week and 11.4% more than the same week last year.
We are short two units of June cattle futures against long June hogs with about a break-even at the present time.
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.
