MORNING LIVESTOCK REPORT                Thursday September 2, 2010

LEAN HOGS

Good morning.  I smell a bounce, a recovery to the upside coming in the lean hog futures market. I've noticed a real lack of downside follow through during yesterday's session. The bad news appears to have been absorbed, for now. We covered most of our speculative short positions in the Dec hogs. A few of my most aggressive traders even went long a small position, but I'm not actively promoting going long in hog futures at this time. I'm still holding the Apr/Dec bear spread for a long term play and would add to this spread at 350 points to the April, given the opportunity over the next couple of weeks. My hedgers will be looking to add to their short positions on a bounce into the middle of Sep. Look for some stability in the cash hog market going into next week. The hog runs have been completely shut off on this round of cash weakness. Also, starting next week, we'll likely be completely out of frozen belly stocks, putting the sole burden of demand on the supply of fresh bellies. I have to admit, I've never seen this situation in my 25 years as a meat broker and I'm not sure where belly prices could go in the next couple of weeks. Fresh belly prices are currently sitting at $1.50/lb, record high. I'm expecting a firm open likely followed by a higher close in lean hog futures today.

LIVE CATTLE

Live cattle futures closed higher on Wednesday with the settlements near their session highs. The cash market has traded in most of the direct trade areas with 97 cents paid for most animals. That's down 2.5 cents from last week and down 3 cents from the recent highs in the cash market. The beef is backing up which should be expected. However, the beef packer shows no sign of letting up on the slaughter pace, telling me that demand remains good for post Labor Day business. Beef exports, reported this morning, remain good to excellent. The trade, in general, is too bearish toward live cattle prices, in my opinion. The board is discount in the Oct and only a very slight premium in the Dec and Feb. A more normal basis would find the Oct trading from 2 to 4 cents over the cash. Look for a flat to lower open likely followed by a steady to higher close.

If you're interested in opening an account to trade livestock and/or grain futures, give me a call at 877.377.7905 or send me an email to dennis.smith@archerfinancials.com.

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