MORNING LIVESTOCK REPORT Thursday July 3, 2008

LEAN HOGS

Good morning and happy Fourth of July! I'll lead off today's comments with the stock market. There's an important employment report out early today. It appears the news regarding the stock market, perhaps, can't get any worse. It's a possible double bottom. Resurgence in the U.S. stock market, perhaps starting today, would be very supportive to both pork and beef in terms of consumer confidence and meat clearance.

Lean hog futures rallied hard on Wed as expected in this comment yesterday. The news off the quarterly hog & pig report was simply not as bearish as traded during the previous seven sessions. I'm expecting further upside recovery today. Keep in mind the livestock market closes one hour early today; noon Chicago time. The Wed kill was aggressive and why not as pork packers are turning a profit on every hog processed. The cutout was down .80 thanks to some weakness in the retail pork cuts as post holiday business has slowed. Hog producers continue to lose money on every hog they feed and send to market. Contraction in U.S. breeding numbers will continue during the third quarter and most likely for the reminder of the year. Most talk regarding the cash market for next week is lower. However, it appears the lower cash is beginning to back fire and packers will be quick to raise their bids to keep plants running full. The key is that demand for U.S. pork remains outstanding. I'm not interested in trading from the short side.

LIVE CATTLE

After two days down against the up trend live cattle futures managed to turn higher and close higher on Wed. Open interest continues to build in the live cattle pit regardless of the direction in prices. Total open interest was up 1,045 and stands record large at 313,550 cars. A few cattle traded in NE at higher money but the volume was not nearly enough to "call it a market". Most traders, including myself are expecting higher cash steer prices to break loose today. The performance of the wholesale beef is the big story here. The choice beef cutout has reached multi-year highs with yesterday's close at 171.17, up .43. The Wed kill was aggressive at 128,000. Packers are killing large numbers of cattle and making a huge profit in the process. Estimated packer processing margins are in excess of $100 per head. I'm in the process of re-establishing length in the live cattle market. We're also looking a bull spreads. For specific trade ideas, feel free to give me a call or send an email.

Full service brokerage pays dividends. Email dennis.smith@archerfinancials.com or call 1.877.377.7905 for more information.

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