MORNING LIVESTOCK REPORT Wednesday July 2, 2008

LEAN HOGS

Lean hog futures have dropped for seven consecutive sessions, dropping well below the cash indices. It's my opinion the market has become way "too bearish". Look for a higher open followed by a higher close today. The most recent hog index stands at 76.06 with July futures closing yesterday at 70.90. The 500 point basis appears way too bearish given that expiration is only two weeks away. The trade has become aggressively bearish going into the following the hog & pig report. While I was surprised at the size of the Mar/May pig crop, the actual slaughter numbers projected for this summer are not out of line with what we've been processing all year. We experienced one of the strongest cash rallies in history this spring while processing numbers of this size. The report confirmed contraction which is expected to continue. My opening call is up 50.

LIVE CATTLE

After correcting downward on Monday live cattle futures rallied early on Tuesday but set back and finished slightly lower. Today marks the third day down against the uptrend. Total open interest continues to swell to record levels in the live cattle. There was no cash steer activity yet this week. Traders are expecting the cash market to trade at 100 or higher. The performance of the wholesale beef is the big story. The choice beef cutout was up 1.83 yesterday, closing at 170.74. Beef demand is on fire. I'm looking to trade the Aug live cattle from the long side on weakness today. I'm also looking at several bull spread opportunities. My opening call is steady to higher.

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