Allendale Livestock Wrap-Up for 3/3/2010
Hogs: Two events were seen today to give the trade one more push to new highs. These gains pushed all contracts, except May, to new highs for this recent uptrend. The first piece of news, released soon after the CME Group futures open, was that Russia had agreed to allow more U.S. pork imports. Currently, only pork from six U.S. pork plants is allowed in Russia. They claim they have found traces of a feed additive commonly used in the U.S. industry. An official with a Russian health organization indicated the United States agreed to follow unmentioned Russian standards and that pork from U.S. plants would gradually be allowed back in. In 2009, Russia was our #5 buyer but is not a market mover. In 2008, they accounted for 9% of our exports. With 2009 exports to Russia falling by 33%, they accounted for 7% of our exports.
Cattle: We must start the comments with a clarification. We saw some recent newswire comments suggesting the recent run was due in part to index funds. They suggested new inflows were made from long-only commodity players. That thought is incorrect. Since Dec. 8, index funds have added a moderate 16,671 new contracts to their net long position. Managed funds, however, have added a huge 79,998 contracts to their net long position. While we are not in any way suggesting a big price break is at hand, we must point out this class of buyer can get bearish, can liquidate positions, and can even go net short. It is important to distinguish between index funds that seek long-term exposure to commodity markets and are pretty insulated to price movements and managed futures that simply follow trends and are just as likely to get short as long. In other words, don’t buy completely into the idea this market is bullet proof. It is easier to distinguish between the two as the new disaggregated CFTC commitments of traders report separates them into different categories.
Rich Nelson is Director of Research at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com