MORNING LIVESTOCK REPORT Wednesday September 1, 2010
LEAN HOGS
Good morning. Lean hog futures staged a rally yesterday but failed to hold the strength with most contracts settling well off their session highs. Later, after the pit session closed, when the closing pork report showed another large decline in the value of the pork carcass, prices dropped further. Thus, the early electronic trade is roughly 50 lower. Cash prices for today are looking flat to lower with packers well supplied with hogs for the remainder of this week. Also, the fact that all plants are dark on Monday will further encourage the defensive cash tone into Friday. Production continues to increase. The rising production has forced a break in the retail pork cuts while the processing cuts continue to hold up well. Fresh bellies remain record high at $1.50/lb. The reason for this is simple but rare; we're out of bellies in frozen storage. Starting next week belly stocks will be near zero meaning the demand for bacon must be met from the daily production of bellies. In the next couple of weeks, until bacon demand backs off, you could see the fresh belly market jump to new record high levels. We're trading the Dec hogs from the short side for my spec traders, holding bear spreads for my spec traders and my hedgers are short the board as far out as July. My next downside target in the Dec hogs is in the 7120-7170 range.
LIVE CATTLE
The outside markets, for whatever they mean to the cattle market, are friendly early today. I mention this because it's my opinion that we are likely forging a major bottom in the U.S. stock market. If I'm correct, it means "the market" is anticipating better economic growth by the end of the first quarter which also would strongly suggest that we're currently looking at a bottoming domestic beef demand situation. Beef export demand has already bottomed out. I'm bullish toward live cattle futures and surprised at how many traders are bearish. The board is "generally bearish" with the Oct live cattle contract discount to the cash when, typically, the contract is trading well over the cash market on Sep 1. The trade and the board are bearish yet the cash steer market has been moving higher in impressive fashion. What I especially like about the market is the fact that beef packers continue to process cattle at profitable levels. They have very little incentive to be stingy and not buy cattle aggressively and no incentive to slow the chain speed. The aggressive slaughter (of recent) tends to verify this statement. I'm trading Oct and Feb from the long side.
If you would like a free trial to my evening livestock wire which also includes a section on the grain market, give me a call or send me an email at mailto:atdennis.smith@archerfinancials.com or 1.877.377.7905,
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