MORNING LIVESTOCK REPORT Thursday November 20, 2008
LEAN HOGS
Lean hog futures closed higher across the board on Wednesday in an impressive performance as compared to the mess in the neighboring live cattle and feeder cattle pit. Cash was soft but the trade is expecting some better news out of the cash market moving into December. The Dec is actually working on building a premium to the CME lean hog index which is finally showing signs of a bottom. Hog supplies are peaking and cheap pork prices appear to be stimulating some domestic demand, possibly even some export demand. The pork packer, operating at profitable levels appears to be gearing up for a larger Sat kill than expected earlier in the week. I'll be utilizing the seasonal strength in the board over the next couple of weeks to establish hedges through various strategies for my producer/hedger clients. My spec traders who are long Feb hogs are moving sell stops up to break even today. Eventually, we'll be looking at some bear spreads for the spec trader. My upside targets on the long Feb hogs are 6350 and 6450. The USDA will issue a monthly cold storage report Friday afternoon at 2:00. My opening call is steady to firm. On yesterday's rally OI was lower in the Dec contract by over 2,500 and we saw a build in OI in every other hog contract. I'd view this information as somewhat supportive in the short term. We need a close over 5660 in the Dec hogs to give the market the look of a bottom.
LIVE CATTLE
Lower stocks, lower crude oil and a sharp rebound in the dollar sent live cattle futures into new lows. Most contracts took out the previous lows like a hot knife through butter. The cattle market is gripped with fear of dropping demand for beef in the face of a deep U.S. recession which also spans the whole globe. Futures have dropped to a sharp discount to the cash market making it possible for hedged cattle to be moved at sharply lower cash bids given the attractive basis. Cash trade broke loose in NE yesterday on big volume as low as 88 cents on the hoof or $140 on the hot beef, both of which are sharply lower than prices paid last week (down $4.00 on the beef and 3 to 4 lower on the live). The session was laced with several rumors focused on BSE (mad cow disease). I'm reluctant to repeat the rumors. There were two new cases of BSE confirmed in Canada early this week and the rumors likely derived from these stories. The BSE in Canada is not responsible for the selling in live cattle futures. I've confirmed through my sources both late yesterday and again today that there are no new cases of BSE in the states and no validity to the rumors. Putting these rumors to rest could initiate a sharp, quick short covering rally today in live cattle. However, the technical damage has been done and without a sharp rally in stocks and/or crude oil, the live cattle market will not be able to bottom. The friendly information on the cattle-on-feed report (due out Friday) could also spur a rally. I'd guess that a recovery of 400 to 600 off the contract lows will be about it as far as upside corrections. If you own cattle and need more protection call me and I can outline a few suggestions. My opening call is higher.
If you own cattle and need more protection call me and I'll give you a few suggestions at 1.877.377.7905 or dennis.smith@archerfinancials.com .
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