MORNING LIVESTOCK REPORT             Thursday October 8, 2009

LEAN HOGS

The Dec lean hog contract has rallied over 400 points in two sessions and is currently trading up another 50 points in the early electronic trade. The cash market during these two days has been higher, not lower. In contrast, however, the product has been lower both days. We have the pork cutout challenging the Sep lows while the Dec futures are poised to challenge their Sep highs. Fundamentally, I don't know what to expect, next. The bullish trader is bullish from either a chart pattern perspective or from a demand perspective. Specifically, regarding yesterday's dramatic surge, I'm hearing that funds were major buyers and that a large local trader was liquidating a substantial short position in the Dec futures. Holding large numbers of Oct puts for my hedgers has been the appropriate strategy. The insurance has not been necessary. It appears most of these puts will expire worthless. Look for a higher open.

LIVE CATTLE

The cash steer market traded yesterday in the S. Plains at lower money with packers successfully buying cattle at 81.5, fully 1.50 lower than what was paid last week. Large deliveries were posted late yesterday against the expiring Oct cattle contract with heavy weight cattle in NE being delivered against the board. The kill was lighter than expected (a negative sign) at 121,000 and the beef cutout was also weak, quoted down .70 at 134.59. Box movement was respectable at 268 boxes and 115 trim. Oct futures are testing major support on the weekly chart (8150-8200). The deferred contracts act like they're going to bounce. I'll be using an upside recovery off the lows to hedge cattle using mostly Dec options. Look for a mixed open.

If you need help in designing and implementing a cattle hedging strategy send me an email or give me a call at 1.877.377.7905 or dennis.smith@archerfinancials.com.

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