MORNING LIVESTOCK REPORT Thursday June 26, 2008
LEAN HOGS
Good morning! Lean hog futures stumbled hard for the third consecutive session as aggressive trades press hard ahead of the quarterly hog & pig report. Interesting what you hear and read ahead of a major report. Traders appear nervous and selling due to ideas the cash market is suddenly "no good". Traders are also pressing with the idea the report will not confirm much sow liquidation and that summer supplies will remain substantial. The only fundamental perspective I agree with is the idea that indeed summer supplies will remain plentiful. However, if the report confirms that supplies of butchers this summer will be up 5% to 7% from last year, that's no change from what we've been experiencing. Recall the trade reaction from the last quarterly hog & pig report. The "honest report" scared many traders and brought in sellers but prices quickly established a bottom. The cash market then proceeded to post one of its biggest, most impressive spring rallies in history. Why; because of excellent demand for U.S. pork. This demand has not disappeared or even wavered. In my opinion, when the report confirms that contraction has indeed occurred, demand for U.S. pork will turn even hotter as end users realize that cheap pork will soon be a "thing of the past". With summer hog futures now under the CME lean hog index, look for good buying to support the board. Yesterday's kill was reported at 423,000 but the pork cutout was up .90 at 80.11. My opening call is steady to better across the board.
LIVE CATTLE
After trading lower at mid session, the expiring June live cattle poked higher and closed 100 points off the low and mustered a new contract high and a new high close. The technical action in the June is bullish. The deferred contracts, with the exception of Aug finished higher. Incredibly, despite what is thought to be a recession, the wholesale beef market continues to climb upward. The choice beef cutout was up .15 at 163.70 on box movement reported at 255 boxes and 128 trim. Weekly cattle slaughter is running ahead of both last week and last year. Beef packer operating margins are "very profitable". It appears we'll start shipping beef in S. Korea next week. I've been bullish the live cattle market all year but my upside targets of 106 in the Aug and 11150 in the Oct have been met. We still own the Aug 110 calls (paid 30 to 40 points) which we'll hold just in case the summer market gets wild, likely due to a shortage of choice grade cattle. I'm ready to execute my first hedging strategy as outlined in my special hedging report. If you'd like a copy of this report, give me a call or send an email. My opening call is higher across the board.
Full service brokerage pays dividends. Email dennis.smith@archerfinancials.com for more details.
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