MORNING LIVESTOCK REPORT                   Wednesday November 11, 2009

LEAN HOGS

Lean hog futures closed slightly lower yesterday with open interest rising by 939 contracts. I noticed that Dec futures settled at 55.62 which happen to be the exact projection for the next CME lean hog index. Futures have been edging down off recent highs while the cash market has continued to firm upward. In the pork fundamentals, several plants will be dark today due to Veterans Day. The daily kill should be about 30,000 head smaller than normal. Also, it appears that packers are not going to gear up the Sat kill effort to make up slaughter pace. This is a warning sign that pork demand is peaking. Average hog weights are beginning to increase which is normal at this time of year. One should expect weights to increase into the January timeframe. Cash hogs are called steady with a soft tone for today. The pork cutout value was down .58 yesterday and I'm expecting additional weakness in the pork carcass moving forward. My fundamental basis is for a break in lean hog futures. The first line of support in the Dec hogs should develop near 5400. Reports today indicate a very large hog producer out of NC has filed for chapter 11. It's a 30,000 sow operation. They'll attempt to continue production while reorganizing under chapter 11. However, obtaining financing could force the outfit to close the doors and liquidate all livestock.

LIVE CATTLE

Live cattle closed lower yesterday with the Dec probing into new recent lows. This contract is now poised to challenge contract lows. Open interest on the performance yesterday was down by just 95 contracts. Reports indicate that a few cattle traded in NE yesterday at lower money, mostly $132, down $2.00 from last week. The volume was likely not enough to consider this a good market test of prices. Nevertheless, I'd expect a flat to lower cash market when it develops this week. The market is facing a double-edged sword of peaking demand and rising supplies of fed cattle. The industry has been working through "very tight" supplies of fed cattle and the result has been a rally in the cash steer market from 81 cents to 88 cents. Many in the trade remain bullish because close outs are still slightly above current cash prices. While certainly frustrating, close outs don't dictate prices, supply and demand are the forces that permit price discovery. I'm expecting a penetration of the contract lows in the Dec live cattle futures. My spec traders and hedgers are positioned for such a move.

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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