Livestock Analysis -- July 12, 2012

July 12, 2012 10:09 AM


Price action: July and August lean hogs closed mid- to high-range with gains of $1.35 and 97 1/2 cents, respectively. Deferred contracts settled narrowly mixed.

Fundamental analysis: Nearby lean hogs benefited from the discount they hold to the cash hog index which is currently projected at $99.25. Additional support came from ideas the pork market may be working on a near-term low as movement has recently been strong while price declines have moderated. Also, USDA data compiled by the U.S. Meat Federation shows pork exports remain strong; May exports were up 3% over year-ago (see "Evening Report" for more).

Concern about lofty feed costs, increasing supplies in the months ahead and signs of weakness in the global economy weighed on deferred contracts.

Technical analysis: August lean hog futures staged an upside day of trade, but ended mid-range. Followthrough buying tomorrow would have the contract challenging this week's high of $94.60 followed by the July high of $96.15. Support lies at yesterday's low of $91.05.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Risk is covered in the cash market for now.


Live cattle

Price action: Live cattle futures ended mostly in the range of 40 to 97 1/2 cents lower, which was a low-range close.

Fundamental analysis: Continued pressure on the beef market raised demand concerns and kept pressure on futures today. Traders believe hot temps have lowered demand for higher-quality cuts, which has led to softer of beef prices. Futures extended losses on news cash cattle trade was picking up at $114 to $115 in the Southern Plains, which is down $2 to $3 from last week. This opens additional downside risk for futures tomorrow, as August cattle ended the day at around a $3 premium to the bottom end of that trading range.

Technical analysis: October live cattle gapped slightly lower on the open, filled the gap, but then extended losses. Support lies at the June double-bottom low of $119.80. A drop through that level would open significant downside risk.


Feeder cattle

Price action: Feeder futures ended sharply to their $3.00 limit lower on sharp gains in the corn market.

Fundamental analysis: Feeder cattle futures benefited from short-covering yesterday as corn futures softened, but the rise in corn prices today sent feeder futures tumbling again. The cash index is at $143.74 and August futures are trading at around a $2.50 discount to the index.

Technical analysis: August feeder futures posted a fresh yearly low, with the next level of support the contract low of $137.00.

Hedgers: Fed cattle producers should carry all risk in the cash market for now. Feeder cattle sellers and buyers should also carry all risk in the cash market for now.

Feed needs: Risk is covered in the cash market for now.



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