MORNING LIVESTOCK REPORT Monday December 1, 2008
LEAN HOGS
Lean hog futures closed higher on both Wed and Friday of last week. The board continues to build a premium to cash that can't/won't be sustained in my opinion. Producers have the opportunity to sell June lean hog futures at $30 premium to the current cash index this morning. Dec futures, which go off the board one week from Friday (Dec 12th) are starting out today's session 640 points over the latest CME lean hog index. The two will converge in one way or another by Dec 12th. While the pork cutout improved last week Friday's calculation was down .35 at 58.50. I'm just not seeing or hearing anything real impressive out of the dressed pork trade. The pork packer margins are barely profitable. Any push higher in the cash market without some product strength will tip their margins into the red. Seasonally, lean hog futures tend to top out on either side of Dec 1. In this case I do expect the market to top out as the huge premium to cash will likely attract large scale selling interest. I'd have to consider the outside market influences as negative early this week. My opening call is steady to firm in the Dec but lower in the 2009 hog contracts.
LIVE CATTLE
Live cattle futures staged a decent recovery off the contract lows after the market reached a downside target (8500) on the weekly chart. However, it's my opinion the recovery has likely been completed and I'm expecting additional downside pressure in futures this week. Cash steer prices traded higher last week (up to 90 cents) but the push has moved beef packer processing margins into the red. Given the fact that "nothing has changed" in the outside markets I'd expect the market to "refocus" on the negative aspect of poor beef demand during a recessionary period of U.S. history. The outside market influences will be negative today after a five day rally in the stock market. Crude oil prices are sharply lower and the dollar is higher, both negative for cattle prices moving into next year. My upside target to begin buying puts for both the hedger and speculator was reached on Friday's open in the Feb live cattle (8850). The Feb closed nearly 100 under this level on Friday's early close. On any higher trade today in the live cattle, I strongly recommend purchasing put options for both my hedge customers and my spec clients. My opening call is mixed to mostly lower with the exception of the discounted Dec which could open fully steady.
If you're considering opening an account to trade livestock and/or grains please give me a call or send an email to dennis.smith@archerfinancials.com or 1.877.377.7905.
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