Lean hog futures managed to hold their head above water once again on Wednesday. While stocks traded mixed and crude was slightly lower hogs started higher and stayed there. We do have to note that the Wednesday afternoon USDA report indicated wholesale pork fell $2.58. In the previous three days it fell 27 cents, rose by 3 cents, then fell 57 cents. This reminder of general weakness could push futures back lower. December has a gap from 6020 to 6050, which may be a short-term target. We had noted this market could post a rebound and put in a buy order. The market got going without us on board. Now, we will attempt a short position. We are not saying futures will push to new lows though. Actually based on our fundamental models they are a little undervalued. It is certainly clear that hogs have a good chance of forming a bottom before cattle do.
On the one hand live cattle futures did a heck of a job Wednesday. Trade was significantly lower early on but by the close many contracts were only mixed for the day. On the charts that will cause some people to say this was a typical bottoming formation. However, we have to note beef fundamentals took another hit today. Cash cattle traded for $92 to $93 in the plains. Last week it was $96 and $97. Wholesale beef fell $4.59 for Choice this afternoon and $1.89 for Select. Though futures posted a good rebound it is clear the trade is not out of the woods here. Our job loss to live cattle price study noted two nights ago implied we could see $85 to $90 in the coming months. That does not mesh at all with the supplies we have coming out of feedlots in the coming months but it is something we are watching here. In the short-term bears are running this show. Into mid 2009 though we have to wonder if inflation will be a significantly supportive factor for this market. If we had a crystal ball this general weakness would bottom out sometime in the next month or two, trade sideways for three more months, then climb back higher based in inflationary support by mid 2009. For hedgers we would encourage active cash market sales right now in both calves/feeders and fats and simply buy a March feeder cattle call or a February Live Cattle call for limited risk ownership. If/when the economy stabilizes we will happily get back to a bullish viewpoint.
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