Livestock Analysis -- July 13, 2012

July 13, 2012 01:38 PM


Price action: Lean hog futures posted moderate to sharp losses in all but the July contract which expires Monday. That capped off a week of sharp price declines.

5-day outlook: Hog traders are concerned on both the supply and demand front, which is triggering liquidation of long positions. Rising feed costs are likely to cause liquidation of the breeding herd, pushing more supplies onto the market at a time when demand is also a concern. In addition, there are worries that the very hot summer will curb consumer red meat demand. If these concerns persist, upside potential in lean hog futures will be limited to mild corrections.

30-day outlook: Seasonally, bacon demand typically picks up as BLT season starts. While that is likely to support belly prices, the pork cutout value will struggle to find a low unless the rest of the cuts stabilize. And that will be difficult if the demand concerns are realized.

90-day outlook: Even without widespread breeding herd liquidation, slaughter numbers and pork production will build seasonally through fall and into winter. That's why there are building concerns on the supply side.

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

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





Price action: Live cattle futures improved to a narrowly mixed finish, but ended with heavy losses for the week. Feeder cattle futures ended sharply lower for the day and the week.

5-day outlook: Choice boxed beef values plummeted this week, signaling faltering demand for high-quality cuts. But the softer prices have sparked solid movement, signaling the a short-term low may be near if the heat wave next week does not cut consumer demand. Traders will also focus on readying positions for Friday's Cattle on Feed and Cattle Inventory Reports.

30-day outlook: Lofty feed prices and deteriorating pasture conditions will cause more calves to be placed into feedlots. But while this points to a near-term increase in supplies, it will also tighten them down the road. USDA expects 2012 beef production to be down 3.9% compared to last year and down another 2.4% in 2013.

90-day outlook: Tightening supplies down the road should keep a floor under cattle prices, provided demand holds up relatively well. USDA reduced its export forecast by 1.3% this year and 2.4% for next year, due to tightening supplies and global economic headwinds.

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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