In Monday afternoon's meeting for the brokers and branch offices, we overlaid a corn and a summer hog futures chart (to listen to this meeting call Greg McBride at the Allendale Home Office at 800 551 4626). The relationship is very clear. Corn up means 2009 hog futures up. With that in mind we are not advising new hedges as we feel corn may be a little undervalued. For short-term livestock fundamentals we are still looking for cash pork to form a clear top here. We are still feeling the October lean hog contract could stand to shed a little more weight. As we have said before our overall plan is to be slightly bearish the October and December. The 2009 contracts may be a little too low actually. Even if we are not advising new hedges for hog prices we still feel all hog producers who buy feed need to be working on a feed hedge plan.
In the Cattle market there is a little conflict going on regarding short-term fundamentals. On the bear side Monday marked the first time since August 1 that boxed beef closed lower for both choice and select. That lower action on the wholesale end could indicate to bears that demand will be wrapping up for the post-Labor Day period. On the other hand though, we are getting reports that show-lists are generally lower than last week. This is interesting as the number of cattle sales last week was actually down from the previous week. That would indicate the number of cattle coming due was much lower than the number of unsold cattle from the previous week. It also confirms that we are on the road for lower and lower beef supplies into the end of summer. At this point asking prices are $102 compared with last week's $100 action. While normally we would assume cash trading would wait until the Cattle On Feed report this Friday, we would guess some action might have to go on a little early. Packers may need to get business done before the end of the week as they are running close to the knife. In other news there may be some interest regarding USDA's Cattle on Feed report coming out Friday at 2pm. Did feedlots restart the placement pace in July as corn prices were falling? For now we like the short strangle option position for speculative trading. For hedging we are not advising any new sales on 2009 marketable cattle. They are following corn and corn may be a value at current prices. Back on the corn end, the action hedgers should be taking right now is locking in feed costs.
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