MORNING LIVESTOCK REPORT Tuesday October 27, 2009
LEAN HOGS
Cash hog prices turned higher yesterday as the pork packer continues to procure hogs in a most aggressive fashion. Packers, evidently, continue to experience good demand for U.S. product. The cutout late yesterday was quoted down .12 at 55.23. Despite the soft tone to the product, cash bids today are looking fully steady. As holiday ham business for Thanksgiving is completed, I'd expect some weakness in the ham market which likely will also drag the cutout lower in the early part of November. Dec futures are trading par with the cash index. The rest of the board is holding substantial premiums to the cash. From a purely fundamental perspective I'm "lost in space". Both Aug and Sep pork production came in record large. Producers are showing a real reluctance to aggressively cull sow herds despite massive losses over the last 16 to 18 months. Production for next year is projected by the USDA to be only down 2.5% from this year. Despite this supply side, long term fundamentally negative news, lean hog futures are technically in an uptrend and holding a substantial premium to the current cash market. Up beat expectations for surging pork demand appears to be the logical reason. But, if demand is so good why is the pork cutout trading so weak compared to last year? It takes a close under 5200 in the Dec hogs to look like a top. It appears this is not going to occur. Stiff resistance is expected in the Dec hogs from 5420 to 5460. Look for this resistance to be tested rather aggressively today.
LIVE CATTLE
Live cattle futures closed lower across the board yesterday but appear ready to stage a partial recovery today. Look for Dec live cattle futures to test key resistance in the 8770 to 8800 over the next couple of sessions. The cash steer market has been working higher over the past few weeks and most traders are expecting another round of cash strength again this week. Show list numbers are thought to be tight, perhaps slightly smaller than last week. We're likely experiencing the tightest supply situation of the year in the beef. The cutout was quoted higher, up 1.30 at 140.32 on the closing beef report. Movement was slow and labored, however, at only 150 boxes and 39 trim. Once the holiday beef demand is completed, I'm expecting the cutout to cool off. Overall, I'm not optimistic toward beef demand in the current economic environment. Unemployment rates challenging 10% will contribute to sluggish beef clearance in my opinion. I'm hedging cattle at current prices.
If you would like more information about this article, please contact Dennis at 1.877.377.7905 or email him at dennis.smith@archerfinancials.com.
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