Dennis Smith
Archer Financial Services
Focus: Livestock

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

Friday February 11, 2011

Cash hog prices were strong again yesterday with the cash outlook for today perhaps more uncertain. The weather pattern will improve for moving hogs next week. The cash hog market has far exceeded my bearish expectations during the entire week. The performance of the pork cutout has been less than impressive which adds to the confusing nature of this market. Pork packer processing margins have gone from profitable to in the red this week. Is there really a shortage of butcher hogs? The board seems to think so, given the huge run-up in prices yesterday with the summer and fall contracts all posting fresh contract highs. We were stopped out of short positions in the April hogs yesterday on the surge in prices. That puts me back on the sidelines. Going with the idea that prices were way overdone yesterday, look for a pullback today.

Live cattle futures were pressured yesterday, early, but the selling finally dried up and prices knee-jerked higher to sharply higher. The local traders had been the leaders on the downside, pressing the market for seven consecutive sessions. The lower price level finally stimulated huge buying which suddenly overwhelmed the selling. I consider yesterday a watershed event in the live cattle. I'm looking for higher to sharply higher prices down the road. In the short term, we're still waiting for direction from the cash steer market. There were additional deliveries against the Feb cattle with all 20 posted on FND re-tendered. This is somewhat negative. The slaughter pace remains aggressive but the beef has been sloppy all week. Finally, evidence has surfaced that cattle have been set back due to the weather with average cattle weights declining. If futures rally again today we'll once again look to add to hedge positions. I've been actively purchasing puts and put spreads in the feeder cattle market to establish a solid price floor underneath this market. Live cattle futures are slightly lower in the early electronic trade. I'm guessing that we'll get some positive cash information before the end of the session and prices will turn back higher.

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