MORNING LIVESTOCK REPORT                   Tuesday October 7, 2008

LEAN HOGS

Cash hog prices are called steady to down .50 today. The first three hog contracts continue to trade at substantial discounts to the cash. Lean hog futures, with the exception of Oct closed lower to sharply lower on Monday as panic type selling hit all commodities. The concern/fear is tied to the sharply lower stock market and credit squeeze fueling concerns of a worldwide economic slowdown. The selling is totally driven by fears of reduced demand for pork. This fear/concern, regarding pork demand, is likely overblown. Large scale liquidation of long positions was evident by lower open interest resulting from yesterday's selloff. Open interest in lean hog futures was down in the first six contracts with total OI down 5,135. Given some stability in the stock market today, I'd expect a recovery to begin in lean hogs. Hog slaughter was pegged at 435,000 and the pork cutout was up .03 at 72.90. My opening call is higher.

LIVE CATTLE

Panic selling filled the live cattle pit on Monday sending both live cattle futures and feeder cattle futures limit down. The selling was tied to perceptions that demand for beef will decline in the face of a widespread economic slowdown. The board is in the process of moving discount to cash, the exact opposite of what occurred with the basis last winter and spring as corn prices shot up to record high levels. Open interest in the live cattle was down 1,414 on the drop yesterday. Technically, there's no sign of a bottom. Fundamentally, we're expected to continue to experience tightening supplies of fed cattle into the late Nov/early Dec timeframe. Also, in surprise fashion, the beef showed signs of a bottom yesterday. On slow/moderate box movement, the choice beef cutout was up $3.74 at 156.16. Demand for choice ribs for out front delivery was responsible for the cutout strength. It appears that someone else is aware of tightening beef supplies down the road and decided that beef prices represent a bargain. Look for a higher open with the possibility of a two-sided trade today.

If you're considering opening an account to trade livestock and/or grains give me a call or send an email at 1.877.377.7905 or dennis.smith@archerfinancials.com .

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