MORNING LIVESTOCK REPORT Friday November 13, 2009
LEAN HOGS
"Friday the 13th." Lean hog futures closed lower to sharply lower yesterday with the pit session Feb lean hog chart showing a 10-day island top formation. The trade seems to be somewhat surprised and uncomfortable with the idea that product sales are slowing and that cutout values have likely topped. The board has been extremely optimistic regarding pork demand moving forward, in my opinion too optimistic. The pork cutout was quoted up .06 yesterday at 57.12. However, I'm expecting additional weakness in the pork carcass into next week. Hams are still likely to stage a substantial break. Futures traded very large volume yesterday at over 84,000 cars with open interest on the break down by 1,329. The Goldman roll should be finished. I'm expecting the Dec to test support at 5400 today with an eventual test of the 40-day moving average. We'll see if the uptrend is able to remain intact. The chart pattern in the Feb hogs is rare and bearish if the gap is not filled in the next couple of sessions. Recently the trend following funds have reversed their short position into a long. They might quickly come back out of these newly formed long positions in the next few sessions. I'm expecting a lower close today.
LIVE CATTLE
What a mess. Live cattle futures have broke down technically this week and the fundamental cash news has followed suit. Also, the feeder cattle market has broke into fresh contract lows which tend to confirm that the move is "for real" in my mind. My current, but not final, downside target in the Dec live cattle is the range from 8150-8200. I want to cover part of my short positions within this range. The cash steer trade in TX occurred at 85 cents yesterday, fully three cents below last week's top. Prices paid for cattle in KS were from 83 to 84, down as much as 3.5 cents from last week. The quick erosion in the cash market is negative and portends additional weakness down the road. The beef was lower, quoted down .51 at 139.31. The beef has been lower three out of four days this week. Finally, live cattle futures volume was very active for the second consecutive session, reported at 81,169. Open interest on the lower performance was down 345. Futures are oversold and due a bounce, especially on a Friday after a large drop. Look for the first line of resistance today at the old lows (8340) with the next resistance level at 8390. If you need to sell cattle use the 8370-8400 range to do your selling. The cattle-on-feed report is due out one week from today and it likely won't be friendly.
If you need help in developing and executing a hedging program in the cattle or hog market give me a call or send me an email to dennis.smith@archerfinancials.com or 1.877.377.7905.
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