April 21, 2009

Chicago Mercantile Exchange live cattle closed lower Monday on US stocks' plunge, fund liquidation and sell stops.

Feeder cattle, lean hogs and pork bellies finished well below board.

Despite favourable fundamentals, live cattle opened on a sour note as US equities and financial markets gradually eroded.

"Cash cattle last week came in better than expected, cutouts continue to move up and packers are starting to see some positive margins," a broker said. "I thought we'd open up at least 50 points had stocks not done what they did."

Spot-April slowly unravelled after the contract filled its recent chart gap and eventually fell below 10-day moving average support. Nearby-June gave up 10-, 100-, 20- and 40-day moving average support as the contract trekked downward.

Spreaders sold August and bought April and June.

Depressed Chicago Board of Trade corn exerted added back-month live cattle pressure.

Live cattle traders on Tuesday await clues about this week's cash bids amid mending beef packer margins and robust wholesale beef movement.

The latest operating margin index for beef packers was plus US$11.95 per head, compared with plus US$5.60 the previous day, as calculated by HedgersEdge.com.

The USDA's midday Monday boxed beef data showed choice cuts up US$1.66 per hundredweight, and select cuts gained US$2.01.

Market bears are sceptical that packers would again pay up for cattle at the same rate that they had over the past two weeks. Others, however, contend that processors may chase supplies as long as cutouts remain strong.

There was also the notion that future's pounding on Monday was overdone and subject to a possible upward adjustment on Tuesday.

Market participants will continue to monitor late-Monday CBOT information for potential deliveries ahead of spot-April live cattle's April 30 expiration.

Feeder cattle ended lower on profit taking, live cattle's significant setback and bearish board premiums to CME's feeder cattle index.

April feeder cattle sell stops and 10-day moving average May support loss hastened front-month declines. May was also mildly overbought.

Some in the pit sold August and bought May on spreads.

April live cattle closed 95 points lower at 87.37 cents a pound, and June finished 190 points lower at 82.62 cents.

April feeder cattle, which will expire on April 30, ended 62 points lower at 98.55 cents. May closed 120 points lower at 98.32 cents.

CME hogs closed lower on fund selling, outside market heaviness and sell stops.

Pork futures sagged at the start after short-term longs claimed profits. US stocks' deterioration, last Friday's pork cutout drop and early-week buyer uncertainty sent hog futures spiralling downward.

Although bullish traders were encouraged by as much as US$5 per hundredweight higher Missouri direct and terminal market hog bids, their mood changed somewhat in response to mostly lower midday direct hog sales.

June opened below 10-day moving average support and later surrendered 20-day and 40-day moving average supports. July fell through 10-, 40- and 20-day moving average support levels.

Bear spreading and disconnect between near-term fundamentals June and July futures left front-month buyers flat-footed. Meanwhile, US equities' relentless pounding and CBOT corn's slide kept a tight lid on rear hog contracts.

Cash hog prices for Tuesday are called steady to firm driven by expectations for tighter hog supplies.

Analysts' average projection for US belly stocks for March is 79.5 million pounds based a 77.9 million to 80.9 million pound range. Ham inventory last month was estimated at 89.1 million pounds. And total amount of pork in the nation's warehouses for March was projected at around 633.3 million pounds.

USDA's Iowa/Southern Minnesota weekly average hog weight item is on tap for early Wednesday morning.

Pork bellies closed sharply lower on follow-through selling, lean hog's pull back and sell stops.

May/July bear spreading and substantial July technical damage worsened belly futures losses.

Belly traders will have USDA's monthly storage data Tuesday afternoon as well as CME's weekly belly storage figures later that evening.

June hogs closed 132 points lower at 72.30 cents a pound, and July closed 140 points lower at 73.57 cents.

May pork bellies ended 267 points lower at 82.05 cents, and July closed 192 points lower at 82.95 cents.