MORNING LIVESTOCK REPORT Thursday August 28, 2008
LEAN HOGS
Wow! Lean hog futures gapped lower and closed limit down. The action in the electronic lean hog trade shows the Oct and Dec down about 160 points. Dec futures took out the July lows like a hot knife through butter. Oct futures are poised to take out their July lows in the near term. On the fundamental front, cash hog prices are expected to be sharply lower again today in the face of quickly eroding pork cutout values. The pork cutout was down 2.05 at 81.74. What has changed? Earlier this month the pork cutout was trading at record highs and the trade was pumped up about huge pork export business. First, the dollar bottomed, second record high pork prices have had their impact at throttling back demand, third, Russia invaded Georgia and the U.S. government and the Russian government are on edge, and fourth, the trade has finally realized that fall production up 3% to 6% from last year will simply be "too much pork". The Russians have indicated they'll be reducing their meat import quotas. The details and timing of such a move are muddy. Also, it's believed the poultry industry would be hurt far harder than pork or beef, followed by the pork industry. Finally, on the trade front there's a problem developing with Mexico and the delisting of a few Mexican meat plants that ship some meat to the U.S. Given the abrupt change in trader psychology, if you're short hogs I'd recommend to stay short. Look for the bear spreads to trade strong in the days ahead with Feb likely gaining on the Oct. Call me if you have questions. My opening call is down 160 to 200.
LIVE CATTLE
Live cattle futures were caught up in the bearish hog trade and fears of reduced shipments of beef to Russia. The board closed sharply lower. Cash cattle traded late Wed at steady money in both NE and TX. Also, notice how the Aug/Oct bull spread closed into new high territory. I was surprised at the weakness in the live cattle market and I'm expecting some kind of recovery today. The concerns about exporting beef to Russia was a real surprise especially in light of news stories this week indicating just the opposite; what a promising and explosive market Russia is for U.S. beef. Look for a rebound in live cattle futures today.
If you're not satisfied with your current brokerage relationship give me a call or send an email to dennis.smith@archerfinancials.com or 1.877.377.7905.
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