MORNING LIVESTOCK REPORT               Monday October 12, 2009

LEAN HOGS

I'm running late so this will be a brief comment today. I have a couple of key items to note today. First, futures sold off rather hard on Friday with the most aggressive pressure noted in the April, June, July, Aug and Oct 2010 contracts. This selling was in tandem with the USDA supply/demand report containing their projection for pork production for 2010 coming in only 2.5% lower than this year. I believe this caught much of the trade by surprise. Second, open interest was up substantially in the April-Dec 2010 hog contracts. This selling was likely large "producer hedging" as large outfits such as Smithfield Foods lock in profitable prices for next year. I would also note that Smithfield stock rallied Friday in tandem with the USDA projection for a record large corn crop. The near term fundamentals today are fairly stable with cash hogs called steady to perhaps slightly lower and the pork cutout on Friday up .08. Last week's kill was down 3% from last year which has attracted the attention of the bullish trader. Bullish traders are also talking up pork demand. However, the pork carcass value is hovering just above the Aug low which also represents a six year low. The cutout is trading below the bottom-end of the cutout from last year. I'm not sure how this translates into strong demand? My opening call is flat to lower.

LIVE CATTLE

Live cattle futures staged a decent rally on Friday in the face of two key items; support from the outside markets and optimism generated from talk of improving demand at the wholesale beef level. Box movement was good last week with active movement noted on Wed, Thurs and Friday. Looking at the near term fundamentals, a new round of deliveries was posted against the Oct contact but most of these were stopped. The dates are very current indicating that anyone still involved in the Oct futures are interested and willing to take delivery. The board rallied on Friday on rising open interest. I'm expecting some upside follow through early this week. My opening call is fully steady.

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