by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com 

Feb. 7, 2012 at 9:40 a.m. Central:

Hogs:

There is little going on this morning to give daily direction. We lost 35 cents on product last night and this was about the same as last year when we lost 30 cents.  The lean hog index was down 21 at 8786 and should be down another 60 points by Thursday.

Pork packers have been cutting daily harvest levels to support a negative operating margin and this has helped, to a small extent. We went home last night with a negative $6.36 operating margin against a negative $16.58  eight trading days ago, but we are still way under last year when packer margins were a positive $8.18.

April hogs’ basis is a little on the friendly side as we closed with April just 69 premium to the lean index. Last year we were 977 premium with a 3-year average of a positive 499.

No one has much of a opinion on hog futures direction the next several days. We had a 4-day, 355-point rally in April futures as traders centered their attention on product strength as packers cut daily harvest levels. Profit taking showed up last Thursday through yesterday as traders start to worry about beef demand replacing pork the last half of February.

We look to sell April hog futures in the 9050 to 9200 area; last-half February retail interest centers on beef at the expense of pork.

We are short three units of April hog futures against long June and waiting for the next leg lower that usually starts late this week or next, as beef volume picks up and psychology shifts to traders looking for hog futures’ normal seasonal decline into April.

We are long two units of June hog futures against short June cattle. This has become to slowest trade I’ve seen in my 35 years in the business. We watch and wait for this seasonal trade to work. It’s like watching paint dry.

Cattle:

Last week we lost $1.01 on choice box beef and $1.17 on select. Weekly volume did increase as we moved 1130 loads against 924 the previous week and 1014 last year. We should start to see daily beef trading volume start to pick up into late February as pre-bookings start for the late-March, southern state grilling season.

Operating margins continue to be very bad as last night we went home with a negative $87.15 per head loss against last year’s positive operating margin of $24.90. As with pork packers, beef packers/processors are trying to limit weekly harvest levels to put a bottom in beef product. Last week’s cattle harvest was 3.1% less than the previous week and 5.8% less than last year. This in turn produced 3.1% less beef than the previous week and 6.1% less than last year. Year-to-date beef production is running 2.355 billion pounds and this is 5.2% less than 2011.

We are trying to buy April cattle futures in the $125.50 to $126.50 area assuming daily/weekly load counts have their normal seasonal advance. A normal seasonal advance in cash cattle from August lows shows cash cattle in the $128 to $131 area in late March or early April. Last night’s close in April was $127.50.

We are short two units of June cattle against long June hogs with about a breakeven after four weeks. Let’s continue to liquidate this spread should June cattle trade 3030 over June hogs for more than one hour.

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