MORNING LIVESTOCK REPORT Friday October 30, 2009
LEAN HOGS
Hogs rallied again on Thursday riding the back of two major stories. The first is an announcement by U.S. Secretary of Agriculture Tom Vilsack that China "would soon" make an announcement they were dropping their current ban on U.S. pork imposed six months ago due to H1N1. I have two problems with this story. First, China was not pressed by the Secretary of Ag as to exactly "when" they would drop the ban. It could be two days, two weeks or two months. Second, even when the ban is officially dropped, I don't expect the Chinese to begin purchasing U.S pork in any quantity. The second major story concerns an outbreak of African swine fever in Russia (in their hog herd). This story, although it will take days and possibly weeks to confirm the severity of the problem in Russia, represents a possible far more bullish scenario than does the Chinese story. Currently, my sources are telling me the situation in Russia does not appear to be serious.
In the near term pork fundamentals, it appears that packers are looking for hogs to finish out next week's kill schedule. Today's cash, as a result, is looking fully steady to possibly even higher. The pork cutout yesterday was quoted higher by 1.14 with the cutout reaching its highest level since July 31. The problem I have with the cutout is the strength is solely due to higher priced hams. It's my opinion that hams could top out any day, leaving the cutout vulnerable to a sharp break. Technically, it appears that Dec hogs will test the July highs (5922). Fundamentally, it's my opinion the market can and will top out any minute. The extreme divergence between the two methods of analysis has me on the sidelines from a speculative standpoint. My opening call is flat to lower by the time the opening bell rings.
LIVE CATTLE
Live cattle futures broke down yesterday as the market, evidently, is anticipating that cash steer prices are at or very close to a major top. The cash market traded as high as 88 cents for cattle in the S. Plains and 135.00 for the beef. However, the expiring Oct futures appear to have "lost their leadership" going into expiration today. The deliveries of heavy weight cattle keep coming but they've outlasted the strong stopper. The fact that Oct futures are currently trading below 8400 in the face of the latest cash market of 8800 is not a good sign. The deferred contracts closed lower yesterday and actually penetrated the session lows from Wednesday. The crux of the cattle market is beef demand, or lack of beef demand. While the wholesale beef has been working higher recently, the volume of boxed trade has been slowing rather substantially. The labored effort on behalf of the packer to successfully petal beef at higher prices appears to be running into a brick wall. Look for a flat to lower futures market today.
If you're interested in 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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