In Lean Hog contracts, very different price action was seen between the 2008 and 2009 contracts on Monday. Significant declines in all 2009 contracts were seen. The worst was in the 2009 summer period. This fits right in with our Friday commentary suggesting liquidation may not be enough to support those big 30% premiums to the same period in 2008. A 3% to 6% decline in pork production scheduled for summer of 2009 just does not equal a 30% increase in hog prices, as futures would imply. There would have to have a tremendous increase in demand to make that target. Keep in mind that a jump in demand would come on top of this year's jump in demand! For speculative trading our recommended August/October spread settled at $4.22. Our $4.50 profit target has a good chance of getting filled soon. On the supportive end, the pork cutouts closed up 74 cents this Monday afternoon. That should still support cash hog prices and therefore the August contract as well. Overall we are neutral the August, slightly bearish the October, and bearish the December. For 2009 contracts we are starting hedges.
We are estimating Friday's Cattle on Feed report to indicate June placements at 90.8% of last year's level. That 9.2% decline comes on the heels of -11.4%, -2.0%, -12.0% in the three previous months. The main point here is high corn prices through June still likely discouraged feedlots from actively placing new cattle. Also, we have to note there was one less Saturday kill this year compared with last year. That accounted for around 1.4% of the decline. Overall, while we can certainly argue the drop in corn is a prime factor, we also have to wonder how much was related due to speculative action. We are starting to wonder if this market has made the down move it needs to make here. Keep in mind March through June declines in placements will help the second half 2008-slaughter numbers decline. We do need to have a premium in these 2008 contracts compared with
2007 levels. We are not actively buying at the market, but are suggesting this down move has reached the point it needs to. We will begin to shift to a neutral viewpoint from neutral to bearish in the coming weeks.
|
|
|