MORNING LIVESTOCK REPORT              Wednesday November 18, 2009

LEAN HOGS

Lean hog futures traded flat to lower most of the session. Then, about 11:30 the market saw large buying with prices moving sharply higher in the Dec and Feb. These contracts managed to post a massive outside day higher close with virtually no change in fundamental news. Today, judging by changes in open interest in the meats and by what occurred in the grains (despite a higher dollar), it appears the index funds were major buyers. There's no indication if they'll be back in today. Yesterday's action is why I prefer option strategies for my hedge customers rather than outright futures positions. We're looking at executing option window hedge strategies in the summer hogs on further strength. My strategy is to relatively light hedged in the Dec, Feb and Apr. In pork fundamental news, cash hogs were lower yesterday, called lower today and expected to be soft to lower for most of next week. The pork cutout has been higher for the past four sessions. However, all of these gains can, and likely will be swept away when the ham market topples. Sep pork exports were up 4% compared to Sep of last year. It's my opinion that cheap prices stimulated the robust export business. This marks the first time monthly exports have exceeded the previous year since March. Thus, it's still not exactly an impressively strong export market. Open interest was up 7,873 yesterday with higher open interest in the Dec (confirming index fund buying) as well as every other hog contract. If the index funds don't show up today, I'm expecting a lower close in lean hog futures.

LIVE CATTLE

Live cattle futures closed higher yesterday marking their third day up against the uptrend. In my opinion that should just about do it. Look for a lower performance today, unless the index funds return. Sources have indicated that a few cattle traded at lower money yesterday in NE. I have no trade to report in the S. Plains. Beef exports during Sep were down 19% compared to Sep of 2008. This clearly demonstrates the problems facing the beef market from the demand side of the equation. I'm expecting the down trend to likely resume today.

If you need help in developing and executing hedging strategies send me an email to dennis.smith@archerfinancials.com.

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