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Will back-month Cattle mooove higher?

Live Cattle: Friday’s USDA Cattle on Feed report on the surface looks bullish, according to Cattle traders, especially for the fall and winter month contracts, however some think that this could turn into a “buy the rumor, sell the fact” trade this morning. First the numbers: on-feed July 1st 99.0% vs. estimates of 99.5%, placed in June 85% vs. estimates of 90.3%, and marketed in June 97% vs. estimates of 96.5%. The real surprise was the placements figure, which should help support the October and December contracts, as there should be less fed cattle available come the fall. However, October Cattle is already trading nearly $6.00 above the nearby August contract, which has some traders believing the market has already priced in the lower placements. Support for October Cattle comes in at 96.20, with resistance found at 97.57. October Live Cattle closed at 96.60, up 0.15.

Pork Bellies: Friday’s monthly USDA’s Cold Storage report may bring bulls stampeding back to the belly pit, as belly stocks came in below even the low end of analysts’ estimates. The USDA estimated belly stocks at 47.7 million pounds, well below the average estimate around 51 million pounds. This could help the August contract move to the upper end of its recent 650 point trading range. Support for August Pork Bellies is seen at 85.50, with resistance found at 92.17. August Pork Bellies closed at 87.25, down 1.05.

Natural Gas: The minor short-covering rally in Natural Gas futures last week has come to an end, as the lead month August contract fell to lows not seen since early January on the weekly nearby chart, as traders react to weather forecasts calling for the above normal temperatures headed to the Midwest this week to be short-lived. In addition, the lack of any signs of tropical disturbances in the Atlantic have traders removing some of the “risk premium” out of the August contract that will expire on Friday. Support comes in at 6.000, with resistance seen at 6.380. In early trade, August Natural Gas is trading at 6.177, down 0.269.

What’s moooving the Cattle market?

Live Cattle futures ended last week posting solid gains, with the October contract reaching highs not seen since March. Traders have become bullish on Live Cattle since the USDA lowered the amount of Cattle placed on feed in its most recent Cattle on Feed report. In addition, hopes that U.S. beef exports will improve, especially to Asia, later this year are helping to support fall and winter month contracts. However, with prices approaching the 100.00 mark, there are some concerns that futures prices may be ahead of themselves, with cash Cattle trading in the $91 to $91.50 area, and potential competition coming from cheaper pork and poultry prices. The most recent Commitment of Traders report shows large speculators net-long 34,437 contracts as of July 24th , and that sets the stage for some profit-taking selling as the month comes to an end.

Looking at the daily chart for October Cattle, we notice Friday’s high of 98.80 was just short of the contract high of 99.45 reached back in March. The 14-day RSI has reached overbought territory, with a reading of 73.58. Before Friday’s upside breakout, October Cattle had been trading in a very narrow 2.00 range for most of the month of July, and the low end of this range at 96.20 looks to be solid support. Contract highs at 99.45 should act as resistance, with 100.00 a potential target, should resistance fail to hold. October Live Cattle closed on Friday at 98.65, up 1.45.

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Bulls charge ahead at the close!

Today was quite the sea saw battle between the bulls and the bears in the US stock market. In the end, the bulls won today’s battle. The Dow closed the day at 13,366 gaining 154 points. The S & P ended the day 10 points on the positive side of the fence while the Nasdaq closed at 2553, up 7 points.

In the news, pending home sales came out with a surprise increase of 5% for the month of June. This could be a leading indicator of new and existing home sales for the report coming out at the end of August. The ISM index came in below expectations at 53.8. The concensus was 55.5.

Bond yields were on the rise today as the 10 year note closed the day with a yield of 4.78%.

In the overseas markets, the Nikkei closed yesterday at 16,870 (down 2.19%) and the Hang Seng closed at 24,455 (down 3.15%).

Economic Data Scheduled for Thursday, August 2, 2007

(All times are U.S. Central Time)

U.S.
7:30 AM: Initial Jobless Claims (Consensus 310K)
9:00 AM: June Factory Orders (Consensus +1.0%)

Canada
None

U.K.
6:00 AM: BOE Interest Rate Decision (Consensus 5.75%)

European Union
4:00 AM: June PPI Mom (Consensus +0.3%)
4:45 AM: ECB Interest Rate Decision

Japan
None

FOMC Takes Center Stage!

Stock Index futures: Equity index traders may get a bit of a reprieve this morning after several days of extreme volatility, as the market gears up for the end of FOMC meeting this afternoon and the announcement on interest rates. The market expects the Fed to keep interest rates steady at 5.25%, but will be keenly interested in its statement after that decision is announced, especially in regards to how the Fed plans to handle the fear surrounding the subprime loan situation. In early trading, September S&P 500 futures are trading at 1467.00, down 0.75

Wheat: Another day, another contract high in December Wheat futures in Chicago, as surging demand due to tight world supplies has traders continuing to bid up prices. Weekly Wheat export inspections came in at 25.127 million bushels for the week ending August 2nd, well above the high end of estimates. Morocco issued a tender for 630,000 metric tons of option origin soft Wheat, which is deemed supportive to U.S. Wheat futures. Paris million Wheat futures hit another new all-time high this morning, trading as high as EUR220 a metric ton in the November contract. The U.S. Winter Wheat harvest is nearly completed, with the USDA reporting 94% harvested so far, up 6% from last week, and 3% above the five-year average. At the end of the overnight session, December Wheat was trading at $688 ½, up 5 cents a bushel.

Lean Hogs: October Lean Hog futures plunged yesterday after reaching contract highs on Friday, as traders liquidated long positions fearing a decline in wholesale pork demand while slaughter rates continue to increase. However, prices may remain volatile in the near-term, as many believe China, the world’s largest pork consumer, will need to increase its imports of pork due to a supply shortage after disease ravaged the country’s pig crop. Wholesale pork prices in China were up 44% through July due to supply shortages. October Lean Hogs closed yesterday at 75.05, down 2.55.

U.S. Economic reports for August 7th 2007

All times are U.S. Central time

7:30 AM: 2Q Advance Productivity (Consensus +2.0%)
1:15 PM: FOMC Policy Statement
2:00 PM: June Consumer Credit (Consensus $6 Billion)

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Running with the Bulls

Think you’ve got what it takes to tangle with 40,000 pounds of full-grown beef cattle?

We’re pleased to announce today that you now have access to the CME meat and livestock futures markets. In addition to live cattle futures, you also can trade futures based on lean hogs, feeder cattle, and pork bellies. This is just the latest example of our ongoing commitment to expanding the breadth of commodity futures available for trading on the optionsXpress platform.

These products trade in the open-outcry pits at the Chicago Mercantile Exchange, from 10:05 AM ET until 2:00 PM ET. The feeder cattle and lean hog contracts are settled in cash and aren’t physically deliverable. Futures on live cattle and pork bellies, though, call for physical delivery.

For many investors seeking portfolio diversification or trading opportunities a bit off the beaten path, CME meat and livestock futures might be worth a closer look.

Take a peek at all the futures products now available for trading at optionsXpress. The list will continue to grow in the weeks ahead.

Dan O’Neil
Executive Vice President, Futures
optionsXpress


Futures involve substantial risk and are not appropriate for all investors. Please read Risk Disclosure Statement for Futures and Options prior to applying for an account.

Commodities Crash, But For How Long?

It was hard to find much green on the commodity quote boards today as liquidation selling pummeled nearly every commodity sector. Some of the highlights (or lowlights): December Cotton closed down the 300-point limit, September Lumber was down 9.50, November Soybeans were down 40 cents, December Gold was down $21.40, October Live Cattle was down 2.07, September Crude Oil dropped $2.33, and the list went on an on. The continuing shakeout from the credit crisis has spurred a flight to liquidity, with traders and investors looking to seek refuge in short-term government debt. Fundamentals were largely ignored in many markets, as forced liquidation of positions took center stage with margin calls looming. However, as of 2:46 PM Chicago time, the S&P 500 futures have staged a bit of a rally, and if they can finish unchanged or higher, we may see a different outcome in the commodity markets tomorrow.

Soybean futures were hit hardest in the grain complex sell-off this afternoon, with the most-active November contract falling the 50-cent limit at one point in the session to its lowest levels since mid-May. The entire commodity complex had been under pressure today due to the continued rush for liquidity in the wake of recent financial turmoil. Also weighing on the Soybean products was the improved chances for rainfall in the Midwest, including previously parched sections of the region. U.S. weekly Soybean exports came in at 313,300 metric tons for the week ending August 9th, with 236,000 mt for the 2006-07 marketing year. Soy products were not immune from the sell-off, as December Bean Oil posted triple-digit losses on the back of sharply lower Crude and Malaysian Palm Oil futures, and December Soy Meal broke through near-term resistance at the 20- and 100-day moving averages. The next support point for November Soybeans is seen at the psychologically important $8.00 level, with resistance found at the 100-day moving average of $8.34. November Soybeans closed at $8.14 ½, down 40 cents.


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Ground Beef!

Not even livestock futures were immune from the liquidation frenzy in the commodity markets yesterday, as lead month October Live Cattle futures fell by over 200 points despite solid demand for beef and firm cash cattle prices. Beef exports are up 20% through June versus last year, with June’s total of 41,000 tons being the highest so far this year. However, fund liquidation took center stage yesterday, with prices gapping below two major moving averages and taking out the recent lows at 94.25 to trigger sell-stops along the way. Today, however, traders will be keener on positioning themselves for this afternoon’s release of the monthly USDA cattle-on-feed report. According to a Dow Jones Newswire survey, analysts are expecting an on-feed number for August of 96.1%, Cattle placed in July at 86.9%, and Cattle marketed in July at 102.6%.

Looking at the daily chart for October Live Cattle, we notice the technical damage caused by yesterday’s speculative liquidation. Prices gapped below both the 50- and 100-day moving averages, setting a weak tone to the market. Once the August 13th lows at 94.25 were taken out, sell-stops were triggered, with few buyers looking to stand in the way of the onslaught. The sell-off has moved the 14-day RSI into oversold territory, currently reading 28.99. The June lows at 92.27 look to be the next major support point, with resistance seen at the 50-day moving average at 95.67. October Live Cattle closed at 93.70, down 2.22.

Mike Zarembski, Senior Commodity Analyst


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Commodities Back in the Spotlight!

Natural Gas: Lead month Natural Gas futures continue to plunge to lows not seen since September of 2006, as continued moderate temperatures in the major U.S. Gas consuming regions and near record high Gas storage levels are keeping bears firmly in control. In addition, the Atlantic hurricane season has been mild, with no major threats to the U.S. Gulf Coast. Current Gas in storage stands at 2.926 trillion cubic feet (tcf), or nearly 13% above the 5-year average. In early trade, October Natural Gas is trading at $5.441, down $0.298.

Lean Hogs: After slumping for most of August, Lean Hog futures surged on Friday in the wake of a 60-million-pound pork deal made with a Chinese trading company. This sparked a round of short covering buying, with the most-active October contract trading close to the 300-point limit at one point in the session. China, the world’s largest consumer of Pork, was rumored to be looking to purchase U.S. pork due to disease issues in the country that have forced a reduction in the country’s Hog herd. October Lean Hog futures closed on Friday at 70.65, up 2.17.

Corn: December Corn futures fell sharply in overnight trading, as industry group Professional Farmers of America estimated the U.S. Corn crop at 13.109 billion bushels, up from the 13.054 billion USDA estimate in the August Crop report. In addition, forecasts calling for drier condition in the Midwest may allow some areas to start the Corn harvest earlier than expected. At the end of the overnight session, December Corn was trading at $3.50 ¾, down 8 cents.

Mike Zarembski, Senior Commodity Analyst

Economic Data Scheduled for Monday, August 27, 2007

(All times in U.S. Central Time)

U.S.
9:00 AM: Existing Home Sales for July (Consensus 5.70M)


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Pork Prices Plummet!

Friday's sharp rally in Lean Hog futures was short-lived, as lower cash Hog prices, weak pork cut-out values and bear-spreading wiped out most of last week's gains. News that China contracted to purchase 60 million pounds of U.S. pork was largely responsible for Friday's sharp gains, as traders short the Hog market were forced to buy back positions, triggering buy-stops along the way. Today, however, bearish fundamentals took over, with Midwest direct Hog markets reporting lower cash prices this morning, as packer demand remains soft going into the Labor Day holiday. Traders are reporting good speculative interest in the October/December bear spreads, as traders position themselves for the start of the "Goldman Roll" in early September. Technically, today’s sell-off moved prices through the widely watched 50- and 100-day moving averages, which may spur some further selling pressure by momentum traders. The next support point for October Hogs is seen at last week’s lows of 66.87, with major support at 65.67. Resistance is now found at the 50-day moving average currently at 69.12. October Lean Hogs closed at 67.70, down 2.95.


Gasoline futures have been on fire of late, rising for the fourth consecutive session as analysts expect U.S. Gasoline inventories to have fallen again last week with traders looking for an additional 2 million barrel decline for the week ending August 24th. This comes after last week’s surprising 5.7 million barrel decline, as Gasoline demand was unexpectedly strong. Some of the recent gains in Gasoline prices have come from the unwinding of Heating Oil/Gasoline spreads by large speculators, who were recently favoring Heating Oil over Gasoline as the end of the peak summer driving season nears. However, continued refinery outages and the upcoming switchover to increased production of Heating Oil versus Gasoline have supported Gasoline prices of late. Today’s rally sent October Gasoline futures above the 20-day moving average on a closing basis, which may spark further buying by momentum traders. The 100-day moving average – currently at 1.9636 – looks to be the next resistance point for October Gasoline, with support found at 1.8781. October RBOB Gasoline futures closed at 1.9485, up 0.0425.

Mike Zarembski, Senior Commodity Analyst


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Can Cattle Futures “Beef” Up Prices Heading Into Winter?

Winter month Live Cattle futures continue to hover around the $100 cwt level, as a surprising drop in Cattle placements on feed in July has traders looking for tight supplies going into the winter. However, beef export business has been slow, especially with South Korea banning imports from three U.S. meat packers due to the discovery of bones in recent shipments. Japan has allowed the importation of U.S. beef, but only from cattle 20 months old or younger due to fears of mad cow disease. Futures are trading at a solid premium over cash market prices, with light trading in the $95 cwt found on Friday. Recent concerns of a slowing U.S. economy would also be a bearish factor for Cattle futures, as consumers switch over to cheaper meats such as pork or poultry. The most recent Commitment of Traders report has speculators on both sides of the fence, with large non-commercial traders net-long 38,090 Live Cattle contracts as of September 7th, and small speculators net-short 30,579 contracts. With valid arguments for both sides on the direction of Live Cattle futures, some traders could “moove” to the sidelines until bulls or bears win the battle.

Looking at the daily chart for December Live Cattle, we notice Friday’s sharp price drop sent the contract below the lows of the recent trading range of 99.62. Prices managed to close just above the 20-day moving average at 99.40, which could be supportive to Cattle prices should this level hold on a closing basis. Momentum as measured by the 14-day RSI has started to weaken, but remains in neutral territory with a current reading of 44.04. Major support is seen at the 50-day moving average of 98.75, with resistance found at 100.20. December Live Cattle closed on Friday at 99.45, down 0.77.

Mike Zarembski, Senior Commodity Analyst

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Bears Going Hog Wild Despite Recent Commodity Run-up

Hog futures are bucking the trend of higher commodity prices this week, with the lead month October contract falling to lows not seen since October of 2006 as weak wholesale pork demand and lower pork cutout values continue to weigh on futures. Packer bids are seen falling as well, with dealers reporting prices steady to $1 lower. October Hogs continue to trade at a steep discount to the CME Lean Hog index, with Wednesday’s value coming in at 64.72. This week’s sharp price drop has sent the 14-day RSI to vastly oversold levels, with a current reading of 13.15. High grain prices have some traders fearing that producers will start liquidating some of the Hog herds, which would put near-term pressure on prices as supplies increase. Support for October Hogs is seen at $60.00, with resistance found at $63.50. October Lean Hogs closed at 61.35, down 1.02

Wheat Futures ended the week on a high note, as export sales continue despite near-record Wheat prices. Sales of 700,000 tons of Wheat to Iraq and 100,000 tons to Algeria started the session on an up note. Speculative buyers then entered the fold, especially after the December contract moved above yesterday’s highs of $8.61 ¼. There is talk that Russia will impose limits on grain exports, which if true would force more business to the U.S., especially with a weak Dollar making U.S. exports more attractive. Weather forecasts continue to call for little moisture in the Wheat-growing regions of Australia, which will not help the already struggling crop. Support for December Wheat is seen at $8.28, with resistance found at $8.98. December Wheat closed at $8.72, up 22 cents.


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Pork on sale

Lean Hog futures continue to buck the trend of higher commodity prices, as lower cash hog prices and higher slaughter figures keep futures prices under pressure. Last week’s hog slaughter totaled 2,242,000 head, up nearly 5% from last year. Producers have not decreased their breeding stocks as much as expected, despite sharply higher feed costs. Friday’s USDA monthly cold storage report was deemed bearish, as ham stocks hit a record 146.9 million pounds -- 6.7 million pounds above the previous high. Pork Belly stocks came in at 22.681 million pounds, which was well above pre-report estimates. Commodity funds have been net-long Lean Hog futures, but the recent sharp break in prices has been partly due to the liquidation of long positions by these large, speculative accounts. Though October Hogs are trading well below the CME 2-day Lean Hog index, traders continue to sell the October contract, with spreaders moving out of October and into the December contract, as expiration of the October futures comes near.

Looking at the daily chart for October Lean Hogs, we notice prices accelerated to the downside once support at 65.00 gave way last week. Prices remain well below all the major moving averages, but the 14-day RSI has moved into extreme oversold levels with a reading of 12.77. With Friday’s bearish cold storage report out, some weak bears may cover their short positions, especially if prices open lower on Monday morning. This may cause a short-covering rally if buy stops can be triggered. 60.00 is seen as support for October Hogs, with resistance found at 63.50. October Lean Hogs closed on Friday at 61.35, down 1.02.

Mike Zarembski Senior Commodity Analyst


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Bears Eating Beef

It was a bad week to be “bullish” on Live Cattle futures, as the most active December contract ended the week at 3-month lows. The prospect of weaker beef demand is mostly to blame for the sell-off, with South Korea placing a temporary block on U.S. imports due to the discovery of spinal material in a shipment. In addition, the recent recall of ground beef due to e-coli contamination is hardly encouraging consumers to eat more beef products. Ample supplies of pork and poultry are also weighing on Cattle prices, with consumers turning to cheaper competitors at the dinner table. Now that Corn prices have started to come down from lofty levels, producers may be encouraged to keep young Cattle on feedlots longer, which would result in heavier weights once they come to market.

Looking at the daily chart for December Cattle, we notice Friday’s sharp sell-off sent prices below the 100-day moving average to end the week. However, the 14-day RSI has reached moderately oversold levels, with a reading of 23.22. Friday’s release of the weekly Commitment of Traders report shows large speculators have started to liquidate their long position in Cattle, with the net-long position by large non-commercial traders falling by 3,336 contracts as of October 2nd. However, the net-long position is likely even smaller, given the sharp sell-off we saw last week. 95.25 is seen as the next support point for December Cattle, with resistance found at the 100-day moving average at 97.82. December Live Cattle closed Friday at 96.12, down 1.72.

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