MORNING LIVESTOCK REPORT                       Wednesday October 28, 2009

LEAN HOGS

Lean hog futures, led by the most active December contract rallied sharply on Tuesday and closed near their session highs. It was a breakout through recent resistance in the Dec hogs. The fundamental reason for yesterday's strength is largely unknown. Cash hog prices yesterday were actually lower although the pork cutout value was quoted up 1.10 at 56.20. The buying in the Dec hogs yesterday was possibly index fund in nature. This reallocation is expected to be completed by the end of this week. What I'm picking up in the pork fundamentals is not bullish, at least in the near term. Cash is looking lower again today and the size of the Saturday kill is being revised downward. Packers are full for the week yet they're not going to as many hogs as they did last week. It tells me that packers are worried about pork demand moving forward into Nov. Average weights remain above last year which is also a negative factor. One new report that could partly explain yesterday's mystery rally is some outbreak of blue ear disease is being reported in China. This is the disease that caused so many problems in 2007/2008. Chinese officials indicate the outbreak is minor in scope compared to 2007/08. For fear of sounding too simplistic, if the cash market is lower today I expect futures to close lower. If you feel the need to sell Dec hogs, do so and place a buy stop at 5640.

LIVE CATTLE

Live cattle closed flat to slightly higher yesterday. The beef continued to move higher with the choice cutout reaching its highest level since mid-Sep. Feedlots are asking higher money for their show list offers after experiencing success the past couple of weeks. We may see additional cash steer market strength for a couple weeks, but I'm not expecting much further out of the board. I'm hedging in the Dec, lightly in the Feb, and hedging in the Apr and June. A survey released yesterday indicated that consumer confidence edged lower for the second consecutive month. In my opinion this is not good news from a beef demand standpoint. It's my opinion that beef demand is suffering from intense price competition from cheap pork and still cheaper poultry. As fed cattle supplies being to increase later this year I'm expecting a test of contract lows.

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