MORNING LIVESTOCK REPORT Tuesday October 13, 2009
LEAN HOGS
Lean hog futures closed mostly higher on Monday with the exception of the expiring Oct which finished down .72. Most active Dec futures gained the most and managed to close over 100 points higher. This contract is flirting with the 5400 mark which likely will be a tough nut to crack, in my opinion. Starting Thursday the Dec will be the lead month as Oct goes off the board Wed at noon. The weekly hog chart shows substantial resistance at the 5400 level. The latest CME lean hog index stands at 50.65. Cash hog prices are called steady for today which, overall, is better than what I'd expected given the large production coming down the pipe. During this period of large production, which is expected to last at least through November, I'd expect a prolonged period of cheap pork as well. Current pork cutout values remain lower than where the cutout bottomed last fall. Also, the value of the pork carcass is hovering about 150 points above its five year low. Pork consumption appears good, but only because of the extremely low prices. Prices will have to stay low to keep the product moving. Look for selling interest to develop in the Dec hog contract today approaching the 5450 level. Commercial hedging is evident in the April-Dec 2010 contracts and this large scale selling should cap off gains in the deferred contracts.
LIVE CATTLE
Similar to the hogs, live cattle futures closed mostly higher yesterday with the exception of the expiring Oct live cattle contract. Oct futures continue to attract more deliveries with 87 new deliveries posted yesterday afternoon along with 22 retenders. The good news is that the retendered certificates were demanded and all of the deliveries appeared to go to a strong stopper. The direct steer trade totals from last week were very small. However, sources indicate that show list numbers for this week are not larger than last week. This tells me that we're currently experiencing the "tightest supplies" of the year. If that's the case, the pricing action is very sluggish in the face of tight supplies. I'm actively hedging production for my clients partly through scale up selling of futures and partly through put spreads. It's my opinion that cattle futures will eventually find themselves trading at or below the key 8000 support. The beef cutout was quoted up .04 at 134.02. Yesterday's box movement was respectable at 199 boxes and 58 trim. Slaughter numbers were not available due to the holiday. I'd expect stiff resistance in the Dec contract in the 8550 to 8600 range.
If you need help in designing and executing a cattle hedging strategy please give me a call or send me an email to dennis.smith@archerfinancials.com or 1.877.377.7905.
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