MORNING LIVESTOCK REPORT                Thursday October 1, 2009

LEAN HOGS

Lean hog futures closed lower across the board on Wednesday but the market managed to keep its composure and finish the day well off session lows. The bullish trader, both technical in nature and fundamental in nature seemed to step up to the plate and buy the market yesterday. The bullish fundamental trader is bullish from a demand standpoint as supplies continue to pour in heavy with production record large. The pork cutout tumbled for the second consecutive day. The pork carcass has lost $2.47 so far this week with additional weakness in the carcass likely today and tomorrow. The cash market was lower yesterday (mostly down 1.50) and bids look weak to down 1.00 again today. It's highly possible that index funds were buyers yesterday in both hogs and cattle. The increase in OI in both of the Dec contracts tells me this is likely the case. I'm expecting a test yesterday's lows over the next couple of sessions. I'm starting to write call options for my hedge clients. By the time the pit opening bell rings look for futures to be flat to down 25.

LIVE CATTLE

Live cattle posted a wild session on Wed, trading lower to sharply lower early and then surging to higher levels into the closing bell. The technically impressive outside day higher close occurred despite a "real lack" of improving fundamental news. As stated in the pork comment, after viewing the OI changes, it's my opinion that index funds were buyers yesterday, evidently doing some allocating of money on the last day of the quarter. I'm looking for a test of resistance to establish hedges for my producer/clients. There's not been any cash steer trade yet this week. The beef is a mess, quoted down 1.25 at 137.68. Movement was moderate at 206 boxes and 110 trim. Look for another round of technically inspired gains today. My opening call is flat to up 25.

If you would like a specific discussion of my cattle hedge strategy give me a call at 1.877.377.7905 or email me at dennis.smith@archerfinancials.com.

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