Wednesday June 13, 2012 at 9:20 a.m. Central:

 

Hogs:

We talked yesterday about the possibility of long hog position holders taking profits if the market could not rally on a very large $2.59 being put on product Monday. July hog futures were on a 23-day rally of 910 points and when a very positive product advance shows up and the market does not advance early the next morning we can get profit taking.

The July hogs were working higher for 23 days and many times we find a 20- to 22-day rally or downside correction ending in this time period. While this was one day longer, it is still close enough to keep track of, and to add to the bear side of the balance sheet. All in all, it was a good day for profit taking, and that’s what we got. ‘Nuff said.

From a technical standpoint the “box” between 9345 and 9500 is about as far as this rally should go in June, with a very negative operating margin that is now a negative $12.98 against a 3-year average premium of $6.59.

Pork product was higher again last night as we put an additional 92 cents on product and are now $3.51 higher for the week. In the last eight weeks, the pork composite value has increased over 15% and is now just 3.6% below last year. Eight weeks ago the composite value was almost 20% under 2011 prices. Traders now begin to worry that wholesale pork prices are reaching a top, and it takes little negative news to get a round of profit taking or in yesterday’s case all traders needed to watch is hog futures inability to rally on sharply higher wholesale product.

We have been looking to sell July hog futures in the 9345 to 9500 area for the last two weeks. Hopefully we will have on last upside move on continued expectations for a further product rally.

Cattle:

We lost a very small 21 cents on choice boxed beef last night and are now just 54 cents higher for the week against being $1.26 higher last year. Wholesale beef news continues good in spite of choice beef being less than 1% under yearly highs, and beef at retail priced 6% over last year. Boxed beef volume for the first two days of this week is 404 loads, 7% less than last week and 22% under last year. Traders will be watching boxed volumes closely the next few weeks as they know June and July are normally the worst two demand months of the year. Should daily/weekly volume start to work lower, on lower money, you will see traders come to the short side very quickly.

Cash cattle have not traded and southern plains prices of $122 and Nebraska at $123 to $124 are keeping a good discount in June futures. June went home with a discount, on average, of 345 points. The 2-year average discount was 160 points. While the negative basis is wide, it is not that unusual; cattle deliveries against the June contract can be made into the first part of July (forgot the exact date) and July is always a weak cash cattle month.

Psychology will be turning skeptical for further wholesale boxed beef prices going higher into the last half of June; this negative thinking, coupled with a small double top ($120 to $120.40) on June charts should find some long position holders taking profits and a fair amount of selling to establish a short position.

Feedlots are filled with fat cattle, but appear to be current. This is the only remaining counter to being short at this time. Be aware there is a good bet that if futures start to decline, feedlots will accept lower bids, as they can offset taking lower money by liquidating hedged cattle with futures at a nice discount.

There is one thing that bothers me at the moment, and that is, someone is staying long June futures from the $127 area since February 6.  They are the oldest long and continue to be first in line for a delivery. Taking cattle at $127 when you turn around and sell them at $122 to $124 makes little sense. I’m investigating.

We are short June cattle from the $118 to $120 area, and if/when we get a technical close below $118.30 by more than 20 points, I would add one additional unit. Psychological breaks are always quick and deep.

 

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.

Hogs:

We talked yesterday about the possibility of long hog position holders taking profits if the market could not rally on a very large $2.59 being put on product Monday. July hog futures were on a 23-day rally of 910 points and when a very positive product advance shows up and the market does not advance early the next morning we can get profit taking.

 

The July hogs were working higher for 23 days and many times we find a 20- to 22-day rally or downside correction ending in this time period. While this was one day longer, it is still close enough to keep track of, and to add to the bear side of the balance sheet. All in all, it was a good day for profit taking, and that’s what we got. ‘Nuff said.

 

From a technical standpoint the “box” between 9345 and 9500 is about as far as this rally should go in June, with a very negative operating margin that is now a negative $12.98 against a 3-year average premium of $6.59.

 

Pork product was higher again last night as we put an additional 92 cents on product and are now $3.51 higher for the week. In the last eight weeks, the pork composite value has increased over 15% and is now just 3.6% below last year. Eight weeks ago the composite value was almost 20% under 2011 prices. Traders now begin to worry that wholesale pork prices are reaching a top, and it takes little negative news to get a round of profit taking or in yesterday’s case all traders needed to watch is hog futures inability to rally on sharply higher wholesale product.

 

We have been looking to sell July hog futures in the 9345 to 9500 area for the last two weeks. Hopefully we will have on last upside move on continued expectations for a further product rally.

 

Cattle:

We lost a very small 21 cents on choice boxed beef last night and are now just 54 cents higher for the week against being $1.26 higher last year. Wholesale beef news continues good in spite of choice beef being less than 1% under yearly highs, and beef at retail priced 6% over last year. Boxed beef volume for the first two days of this week is 404 loads, 7% less than last week and 22% under last year. Traders will be watching boxed volumes closely the next few weeks as they know June and July are normally the worst two demand months of the year. Should daily/weekly volume start to work lower, on lower money, you will see traders come to the short side very quickly.

 

Cash cattle have not traded and southern plains prices of $122 and Nebraska at $123 to $124 are keeping a good discount in June futures. June went home with a discount, on average, of 345 points. The 2-year average discount was 160 points. While the negative basis is wide, it is not that unusual; cattle deliveries against the June contract can be made into the first part of July (forgot the exact date) and July is always a weak cash cattle month.

Psychology will be turning skeptical for further wholesale boxed beef prices going higher into the last half of June; this negative thinking, coupled with a small double top ($120 to $120.40) on June charts should find some long position holders taking profits and a fair amount of selling to establish a short position.

 

Feedlots are filled with fat cattle, but appear to be current. This is the only remaining counter to being short at this time. Be aware there is a good bet that if futures start to decline, feedlots will accept lower bids, as they can offset taking lower money by liquidating hedged cattle with futures at a nice discount.

 

There is one thing that bothers me at the moment, and that is, someone is staying long June futures from the $127 area since February 6.  They are the oldest long and continue to be first in line for a delivery. Taking cattle at $127 when you turn around and sell them at $122 to $124 makes little sense. I’m investigating.

 

We are short June cattle from the $118 to $120 area, and if/when we get a technical close below $118.30 by more than 20 points, I would add one additional unit. Psychological breaks are always quick and deep.

 

 

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.