MORNING LIVESTOCK REPORT                    Wednesday May 7, 2008

LEAN HOGS

Good morning. Lean hog futures rallied again on Tuesday once again led upward by the most active June contract. The July and Aug seemed to experience some selling resistance with their settlements below the opening range. Solid strength was noted in the Oct, Dec and Feb. The rally was fueled by the continued higher tone in the cash hog market driven by a higher pork cutout value. New positions continue to be established with total OI in lean hog futures increasing by nearly 4,000 cars. Total lean hog OI is record large this morning at nearly 250,000 contracts. Today marks the first day of the Goldman roll where large positions are rolled out of the June and into the July and Aug. I'll raise a warning flag concerning the product trade. It appears the volume of trade is declining in the product and the loins are beginning to weaken. The hams came off their highs last week. I would not want to bank on the fresh bellies holding the cutout at this level. Out-of-town belly stocks stand at 73.5 million lbs, up 60% from last year. Belly usage is good and production is huge. The weekly out-of-town report showed a slight OUT movement of 365,000 lbs compared to an OUT movement last year of 288,000. A comparable OUT movement in the face of 10% larger production indicates good usage. The problem, however, is the fact that production, apparently, is not going to let up. Today likely will be a pivotal session in lean hog futures. I'm looking for a failure to sustain the up trend. My opening call is steady to 25 higher.

LIVE CATTLE

Live cattle posted a higher close on Tuesday with the front month June leading all contracts higher. While there was nothing significant on the technical chart pattern, take notice that Oct futures appear poised to take out their contract highs. The beef packer, enjoying profitable processing margins continues to slaughter aggressive numbers. While the cutout wavered yesterday, the overall performance of the beef over the past week has been better than expected. I'm bullish live cattle futures from a supply perspective, from a demand perspective and from a technical perspective. S. Korea will start inspecting beef on May 15. Once U.S. beef is available to the S. Korean consumers, it's my opinion they will "gobble it up". S. Korean producers have been protesting the drop in the beef ban, citing health concerns. The S. Korean government has been steadfast, indicating the agreement will stand. The seasonal tendencies are upward in both fats and feeders. Rising corn prices is bullish toward the deferred live cattle contracts yet stands as the "fly in the ointment" for the feeders. My opening call is steady to higher across the board.

Full service pays dividends. Email dennis.smith@archerfianancials.com for more information.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.