The Dow Jones Industrials were down as much as 216 point in the morning trading on 1 October before closing 19.6 points (only 0.18%) lower than the previou day. The S& P 500 fell 5.3 points or 0.45% while the NASDAW fell 22.5 points or 1.1%. Those appear positively victorious compared to some recent sessions.

As for commodities, the losers and winners swapped places to a great degree today. Corn futures were 3 to 5 cents lower across the board but soybean and soybean product futures gained ground and wheat, which was higher yesterday, lost from 7 to 9 cents per bushel in both Chicago and Kansas City. Livestock futures were mixed with no substantial moves in either Live Cattle or Feeder Cattle but some pressure on the pork complex with bellies falling $1.30 to $1.60/cwt and December hogs falling $1.225/cwt.

That decline in December hogs is worth a comment. Recall from yesterday’s discussion of the quarterly Hogs and Pigs Report that we felt that the inventory estimate for pigs weighing 60-119 pounds meant that December supplies would be low relative to those of November and October, creating a rather unusual slaughter pattern this fall that might mean an early seasonal price low.

The sell-off on December hogs would seem to contradict that (not that the real market has not contradicted us on many occasions before!) but there are two other important factors to consider: The expiration dates of Lean Hogs contracts and cash settlement. LH contracts expire on the 10th business day of the month, meaning the December 2008 contract will go off the board on Friday, December 12. If October and November supplies are as large as the report indicates, cash hog markets may not have time to recover much before the December contract expires.

Add in the fact that cash settlement means futures and cash will indeed converge on those last couple of days of trading and a scenario where Dec futures will be pressured downward by large October and November supplies is understandable. December Lean Hogs futures do not represent the MONTH of December; they represent the 30 days or so that end on the 10th business day of December. Likewise for other months.

We are not stock analysts, do not play stock analysts on TV and did not stay in one of those Holiday Inns last night but thought a bit of basic information about the meat sector might be appropriate given the hammering that many meat companies’ stocks have taken the past few days. While there is reason for uncertainty regarding some companies, the margins situation for pork and beef packers

has hardly ever been better than in recent months. The 4-week average for gross margins of beef packers had never been higher though two weeks in the fall of 2003 still stand as the highest ever.

The only times that the 4-week average or individual weekly observations for pork gross packer margins were higher than in recent months was in the fall of 1994 (just barely so and very briefly) and during the hog price meltdown of late 1998 and early 1999. While some costs have risen and some packers may not perform quite this well since they buy feed instead of livestock, these charts show that the MEAT business has been good and remains so versus history.

Estimated Gross Packer Margin - Beef

(4-week average of Cutout Value + By-Product Value - Live Cost)

Estimated Gross Packer Margin - Pork

(4-week average of Cutout Value + By-Product Value - Live Cost)