MORNING LIVESTOCK REPORT Thursday October 15, 2009
LEAN HOGS
Lean hog futures closed higher yesterday with the feature of the trade active bear spreading. Traders appear interested in buying the Feb and selling the Dec to hold as a spread. Oct futures expired in good shape as the cash market has outperformed most expectations this month. Indeed the pork market is fairly stable with demand meeting production. This has resulted in stability in both the cutout and in the cash bids offered by the packer to the hog producer. Everyone appears happy at the moment. Futures are holding a substantial premium to the cash. This is, in my opinion, at bit too optimistic. The trade is evidently factoring in tremendous demand for pork in the months ahead. While I agree that current pork demand is good, prices need to stay low in order to "keep demand good". A surge in pork values will only push the consumer toward poultry or away from meat consumption. The latest data indicates that export business remains sluggish. Sources indicated that August pork exports were down 17% from August of 2008. There's still talk of additional index fund buying for next week. I'm expecting significant resistance in the 5400-5500 range basis the December lean hog futures. I'm positioning from the short side with my spec traders and placing a buy stop above 5500.
LIVE CATTLE
Live cattle futures rallied impressively on Wednesday. However, resistance levels were not breached and this market, in my opinion, remains locked in a down trend. My clients have been very active this week in establishing hedges for production for the remainder of this year. Put spreads in the December live cattle options has been my favorite hedge strategy. There's not been any widespread cash steer trade to report yet this week. After rising on Tuesday the beef market was stable on Wednesday. Deliveries continue to be posted against the Oct futures with heavy weight cattle still a problem, especially in the northern plains. The premium structured futures board also represents a problem and will encourage continued overfeeding of cattle. Much of the buying enthusiasm this week has been generated from the outside markets. It appears that support may not be evident today. Finally, the USDA will issue their cattle-on-feed report tomorrow at 2:00. The report, for the first time in over a year may show cattle-on-feed inventory above the previous year. Placements during Sep are expected to be up 5% on the report. I'm expecting a lower close today.
If you're considering opening an account to trade livestock and/or grains give me a call or send me an email to dennis.smith@archerfinancials.com or 1.877.377.7905.
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