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Dennis Smith
Archer Financial Services
Focus: Livestock

Phone: 877-377-7905
E-Mail: dennis.smith@archerfinancials.com


MORNING LIVESTOCK REPORT
Monday January 4, 2010

LEAN HOGS
Lean hog futures closed flat to mostly lower on Thursday with the front month Feb near unchanged, Apr down 62 points with the summer hogs down over 100 points. While the early indications, based upon a weak dollar and rising commodity prices, is higher, I consider the pork fundamentals negative this morning. First and foremost is the fact that Russia has banned imports of all U.S. poultry. This is very negative for broiler prices and thus also negative for pork prices. Second, the hog & pig report was negative in that efficiencies in the pork industry are beginning to “override” breeding herd liquidation. Indeed, the fall pig crop was slightly larger than the pig crop one year ago, despite a 3% smaller breeding herd. The inelasticity of supply is negative for hog prices moving forward. In the short term, bitter cold temperatures is short term friendly as the severe winter conditions makes it difficult to move hogs. This situation, however, should be rather short term in nature. I’d look for a lower open followed by a lower close today.

LIVE CATTLE
Live cattle futures rallied sharply on Thursday in the mist of tough winter conditions, reduced cattle weights and rising steer prices for the third consecutive week. While the market has been bullish recently I do not consider the fundamental landscape bullish. I have to be negative from both a supply stand point and from a demand stand point. The lone bullish fundamental is represented by the weather with two winter storms having an impact on cattle performance during December. The weather pattern for January does not look nearly as bullish as December was. Also, regarding demand, after paying higher money for inventory the last three weeks, beef packers are expected to be asking higher money for wholesale beef this week. That’s likely not going to work well with poultry prices dropping hard and pork prices likely working lower as well. I’m holding hedges in the Feb options. Look for a higher early trade likely followed by increased selling interest as the session wears on.

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