by Bob Short, PFGBEST

1-800-280-4566

rshort@PFGBEST.com 

Feb. 9, 2012 at 9:55 a.m. Central:

Hogs:

We lost 13 cents on product last night and are down just a nickel for the week. The lean hog index was 5 cents lower last night and down a very small 41 for the week as it closed at 8766. April hog basis remains tight as we closed with a 129 premium against a three year average of a premium 488.

The Golden Rule in trading for February is to find a spot to sell April hog futures as traders, always looking forward, anticipate our seasonal increase in weekly hog harvest putting pressure on the cash hog market and product. In addition, this psychological worry is compounded with trader worry of retailer interest in booking beef for upcoming late March early April southern state grilling business.

Pork product is turning soft in spite of the last several weeks of reduced harvest as pork packers tried to help their negative operating margins. Weekly product volume is still staying good as the first three days of this week we have traded 256 loads against 265 last week and 245 last year.

We have been waiting to sell April hog futures in the 9050 to 9200 area for the last week. With pork product looking for bids, we now need to lower our selling area. We should be selling April hogs in the 9000 to 9125 area with a strong possibility that today’s high of 9030 will be the high for February. It would take strong outside markets to get hogs back to the 9200 area. Pork fundamentals, bar charts and psychology are all pointing to the short side.

We are short three units of April hog futures against long June and will seek to add a fourth when April closes more than 1000 points under June.

We are long two units of June hogs against short June cattle and growing very old waiting for this spread to work. We’re at about breakeven this morning.  

Cattle:

Beef packers continue to push box beef higher with choice closing 88 cents higher for the day and it is now up a large $3.44 for the week. The problem continues for packers as every time they push beef higher their volume dries up. For the first three days of this week we have traded 612 loads. This is 7% less than last week, 23% less than last year and 31% less than two years ago.

We continue to look to the buy side of April cattle in the $125.50 to $126.50 area, betting that the strong seasonal for higher cash cattle trumps near term negative operating margins and less than stellar weekly box beef volume.

We are short two units of June cattle against long June hogs with about a breakeven as I write this. Like always, we should liquidate this spread should June cattle trade 3030 over June hogs for more than one hour. We lack the 200- to 300-point lead we should have based on slow January beef business as cash cattle trading $2 to $3 higher for the month kept the spread from working.

 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.