MORNING LIVESTOCK REPORT               Tuesday August 31, 2010

LEAN HOGS

Good morning.  Lean hog futures opened unchanged yesterday and spent the entire session trading higher for the day. However, the action appears to be a consolidation likely before heading lower. Technically, the action yesterday was an inside day compared to Friday's large range of trade. Cash hog prices were lower yesterday and they're expected to remain under pressure again today. The pork cutout was down .25 at 93.26. Thus far the weakness in the pork carcass has been driven by lower retail pork cuts. We've not seen any weakness develop yet in the processing cuts. As production increases I'd expect additional cutout weakness as bellies top out and hams pull back. I'm trading from the short side in the Dec hogs for my spec clients. My hedgers are short the board as far out as July. Look for flat to lower trade today in lean hog futures.

LIVE CATTLE

The Aug live cattle contract will expire today at noon, Chicago time. The most active Oct contract has closed flat to lower for five consecutive sessions since posting a contract high and new high close. The five day correction has been shallow and has not penetrated any key support levels. I'd rate the chart pattern in the Dec, Feb and Apr as "very bullish" with possible bull flag formations being etched out. The show list size is only slightly larger this week compared to last week despite light numbers of cattle purchased by the packer. The cash steer trade occurred mostly at 99.5 cents last week, down a half cent from the $1.00 tops paid the prior week. Beef packers continue to enjoy excellent processing margins. This is being demonstrated through an aggressive slaughter pace with yesterday's kill reported at 130,000, above the estimates, above last week and above last year's kill. There's nothing bearish in the packer behavior. Most traders are expecting the beef to edge lower as Labor Day business is complete. However, post Labor Day beef demand is expected to remain good. Unless demand falls off a cliff, the beef packer has little incentive to stop buying cattle and processing at current margins. My hedgers own put spreads for protection while leaving the upside to prices open. My spec traders are positioned from the long side expecting the strong up trend in futures to likely remain intact.

If you're not satisfied with your current brokerage relationship give me a call  at 1. 877.377.7905 or send me an email at dennis.smith@archerfinancials.com.

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