MORNING LIVESTOCK REPORT Tuesday November 18, 2008
LEAN HOGS
Lean hog futures closed lower across the board on Monday with the market acting sluggish for the second consecutive session. The market has attempted to forge a seasonal low but the 325 point recovery off the contract lows in the Feb hogs was short lived and did not penetrate any resistance levels. Now, suddenly, the market is drifting back toward the lows. Cash hog prices appear to have bottomed with the National base cost higher and the CME lean hog index quoted higher for the first time in weeks. Cash hog prices are called mostly steady for today. The Monday slaughter was aggressive at 436,000 compared to 433,000 last year. The dressed pork cutout was down .70 at 55.71. The lean hog futures board is struggling to hold the premium to the cash market. This will likely be an issue all winter. However, at the moment I'm still expecting some kind of short term recovery in futures prices as the cash market firms. I guess, at this moment, the outside markets are grossly overdone and in general the financial community is factoring in a "worst case" scenario regarding the health of the global economy. I desire to use a solid recovery off the lows to establish hedges for hog producers. We'll be establishing marketing windows through Feb options and selling some deferred contracts outright to lock in profitable prices for a small portion of production next year. Suspecting that the outside markets might be a bit more positive by the opening bell, I'm going to call futures steady to higher.
LIVE CATTLE
Live cattle futures closed sharply lower on Monday in a very negative performance on virtually no fundamental news. The sellers appear to be totally focused on the outside markets and factoring in a "worst case beef demand scenario" for the next few months. While I agree the economic news is going to be negative at least through the first quarter, I guess I'm not convinced the actual devastation to beef demand will be a great as feared. Futures are now trading at a sharp discount to cash which traded at 93 cents last week. Every live cattle contract, with the exception of Feb 2010 futures are trading at a sharp discount to cash. Dec futures are nearly 5 cents under the cash, Feb are 4 cents under, April closed 260 points under the cash and June futures stand over 6 cents under the current cash market. The board has factored in a fairly bleak situation. The supply side is not nearly as bleak with current supplies of fed cattle still tight. The beef was higher yesterday, quoted up .37 at 157.39. Finally, the USDA will issue a cattle-on-feed report Friday that likely will show another round of light placements into the feed yard. I'm holding puts for my hedgers but I'm not willing to sell the market at these levels. Again, guessing that the outside markets may be somewhat supportive by the opening bell, I'm calling live cattle futures steady to higher after getting overdone to the downside on Monday.
If you're interested in opening an account to trade livestock and/or grains give me a call or send an email to 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.
