MORNING LIVESTOCK REPORT Thursday October 9, 2008
LEAN HOGS
Good morning. Some stability seems to be returning to the stock market. Yesterday seemed to be capitulation and redemption selling which may have put in a near term bottom in stocks. Many commodities appeared to bottom yesterday. Lean hogs closed mixed with the front end (still discount to cash) edging higher while the back end (premium to cash) closed lower off worries regarding future demand. I believe it's possible that Feb, Apr and Jun hogs are near lows that won't be penetrated to a great degree. Cash hogs are called weak to down 1.00 today, we'll see. The packer seems to be eager to kill as many hogs as they can get their arms around. Evidently they know the demand is either there or will soon be there as production begins to drop off in 30 to 40 days. U.S. pork is cheap, despite the recent recovery in the U.S. dollar. The cutout was down 2.58 at 69.75. That's the lowest the cutout has been since April 22nd. Ocean going freight rates have dropped dramatically partly offsetting the strength of the dollar. U.S. pork represents a very inexpensive source of protein. Furthermore, evidence continues to surface that poultry production is declining. Three to six months from now, less total meat will be available to the world. I have no spec positions in hogs at this time. My hedge customers are preparing to secure large numbers of put options to hold into Dec as minimum price floor insurance. The economic slowdown and recession represents the number one problem for hog producers at this time. My opening call is down 25 to 50.
LIVE CATTLE
The biggest threat to the live cattle market is also the slowing economy and possible negative impacts on beef demand. However, in dramatic fashion on Wed, it appears that live cattle futures may have bottomed. Prices opened lower, plunged into fresh contract lows for the second time this week, traded at limit down or close to limit down and then recovered and finished near unchanged with the April contract actually higher. The cash market dropped hard and this likely will be a low in the cash market for this fall, in my opinion. Cash steers in the south traded mostly at 92 cents, down 4 to 5 cents from last week. The beef also tumbled with the choice cutout down 4.59. However, box movement turned active at 313 boxes and 125 loads of trimmings. I'm moving my clients into bull call spreads. These positions will profit if the futures bottom, have defined risk; require no margin and one can't get stopped out due to high volatility. If you have questions regarding these strategies send an email or give me a call. My opening call is mixed from up 20 to down 20.
If you're considering opening an account to trade livestock and/or grains give me a call or send an email at dennis.smith@archerfinancials.com or 1.877.377.7905.
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.
