MORNING LIVESTOCK REPORT                       Wednesday March 17, 2010

LEAN HOGS

Cash hog prices were soft to lower yesterday with the market called flat to lower again for today. The CME lean hog index has started working downward with the latest index quote at 7388, down .57. For comparison, April hogs settled yesterday at 7175. Thus, the board is factoring in additional cash weakness. The cutout was down .97 at 73.08. There are several news stories out today. Yesterday the attaché report out of Mexico indicated they intend to import more pork than expected in 2010 due to their expanding economy. This is good long term news for the pork market. It also appears that some pork may start moving to Russia as soon as next week. Finally, in the news is talk that China is opening up their market to U.S. pork. I'd view this report with caution as I'm not expecting the Chinese to begin purchasing U.S. pork anytime in the near future. Judging by the soft nature of the near term pork fundamentals, I'm expecting a break in lean hog futures. A break would likely be led down by the April contract. I need to see a close in the April below 7150 to convince me the market is headed lower.

LIVE CATTLE

Live cattle futures seesawed back and forth yesterday on either side of unchanged. The April finished slightly lower with the June and Aug slightly higher. It felt like a quiet session...not the case. The volume yesterday was over 44,000 and open interest surged again, increasing by 7,769 to a record high 348,627. The funds continue to add to their length. When this market turns and tops, it's going to be a debacle. However, as of this moment, there's no sign of a top. The beef soared yesterday with the choice cutout up 1.69 and quoted at 152.52. I noted that box movement slowed to just 134 boxes and 63 trim. Yesterday, I also noticed that feeders closed slightly lower across the board. There's simply no way to predict when this market will top. Hedgers need to look beyond the April and take a fresh look at the June which is extremely rich on the basis. Most of our hedges are located in the April through puts and put spreads. I'm glad we left the upside of this market wide open. I would approach the June in the same fashion, puts and put spreads. Look for a higher early trade and then...who knows?

If you need help on developing and executing a hedging program in the livestock market please send me an email or give me a call at dennis.smith@archerfinancials.com or 1.877.690.7303.

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