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Look For a Full Recovery in Lean Hog Futures During Today’s Pit Session


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MORNING LIVESTOCK REPORT                    Friday April 15, 2011

LEAN HOGS

After two sharp upward sessions, lean hog futures backed off in the overnight electronic trade. Other than profit taking and maybe some hedging, I see very little reason to be an aggressive seller of the board today. It's my opinion the long term uptrend in hog prices will continue. Pork demand, both domestically and in the export market appears to be increasing. With new crop corn prices probing into new highs, the feeding ratios remain lousy. This could keep the hog & pig survey's calling for lower farrowings this spring and summer accurate. Thus, we're very likely faced with the prospect of declining production during a period of increasing demand. The cash hog market took a breather yesterday and this may have spurred some selling last night as well. However, I'm expecting a firm to higher tone in the cash hog market into next week. I'm expecting a full recovery today, likely led by the most active June lean hog contract. China's inflation news overnight was bullish. The CPI, in China during March came out at 5.4%, the highest jump in prices since July of 2008. Specifically, they have a food price inflation problem and the quickest way to deal with rising food prices is by importing pork and beef. China's pork production during the first quarter was up 1.7% from the first quarter of last year yet pork prices continue to climb. Clearly, they're not able to expand meat production fast enough to satisfy their counties growing appetite. This is quite bullish toward hog prices, in my opinion.

LIVE CATTLE

Today looks very similar to yesterday, a sloppy/lower early trade in the electronic live cattle trade. I would not be surprised to see a full recovery similar to yesterday's action. I suspect a move upward today would be generated by a better than expected tone in the cash steer trade. If cash trades at $1.20 in the S. Plains today, look for a nice bounce on the board. Long term, I'm bullish and trading the Dec and Feb from the long side. The beef was lower again yesterday but don't overlook that fact that box movement has been very active this week. Beef exports continue to run at very impressive levels. I'll talk more about beef exports in tonight's evening wire. Cattle weights are edging lower and eventually placements will drop off severely. I recommend trying to stay focused on the long term beef supply/demand situation which is quite bullish.

If you would like a free trial to my evening livestock wire, please give me a call at 1.877.377.7905 or send me an email to dennis.smith@archerfinancials.com.

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.



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About the author


Dennis Smith has been a full service commodity broker specializing in grain and livestock trading for over 25 years. Dennis has a wide range of customers, many of whom are grain and livestock producers. Dennis develops and helps execute hedging and speculative strategies in his Daily Livestock Wire which is prepared each afternoon exclusively for his customers.

Dennis grew up in Central Illinois before launching his brokerage career.

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