MORNING LIVESTOCK REPORT Tuesday February 9, 2010
LEAN HOGS
Good morning! Cash hog prices are called firm to higher today. The focus of the trade is the winter storm moving across the Midwest making transportation difficult for moving animals to slaughter. It appears the trade is "solely focused" on the short term. Hog futures rallied Monday and remain firm to higher today in the early electronic action. Hog open interest was up only 204 cars on the strength yesterday. Feb hogs hold a large premium to cash. This contract goes off Friday. Thus, it's fair to say the board has already factored in cash strength for Tuesday/Wed. The USDA, in their supply/demand report this morning lowered projected pork production for this year by 115 million lbs. They also left export projections unchanged at 4.5 billion lbs of pork, up 8% from last year's exports and 20% of total production. These are impressive export numbers and will be the key to the hog market moving forward. I fear that problems in the poultry industry could cause the pork exports to cool a bit from these projections. The USDA is projecting that poultry exports will drop nearly 1.0 billion lbs from last year. This will change the poultry tonnage available to U.S. consumers and effectively compete with pork for the consumer dollar. If the downtrend is going to resume in hogs futures I would expect it to peak today. I'm trading the April from the short side for my spec traders.
LIVE CATTLE
Live cattle futures broke out to the upside on Friday, closed higher on Monday and continue to edge upward in today's early electronic action. Friday's trade saw the shorts "give up" with a sharp decline in open interest noted. Monday's higher close was fueled by fund buyers with open interest increasing by nearly 6,000 cars. The trend- following funds are holding a large net long position in live cattle futures. The cash steer market traded firm to higher last week. While the beef was lower every day last week the choice cutout managed to close up .75 on Monday. Long term, it appears the harsh winter weather is delaying cattle marketings and back logging supplies. I can't view this as bullish "down the road" but the market is focused on the short term. Second, while the winter weather has stressed cattle in the plains, the same weather is negative from a meat consumption perspective. Major storms along the eastern seaboard are not good for meat consumption. I'm fundamentally bearish live cattle futures but out of the market due to the strong technical picture. I recommend to stand aside for now.
If you would like a free 30-day trial to my evening livestock wire give me a call or send me an email to dennis.smith@archerfinancials.com or 1.877.377.7905.
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