Livestock Analysis -- July 16, 2012

July 16, 2012 09:26 AM


Price action: Lean hog futures saw choppy trade today and settled in a like fashion. The July lean hog contract expired 15 cents lower at $97.07 1/2 today.

Fundamental analysis: Traders weighed a weak cash hog market against optimism the pork market will soon strengthen. Packers have recently seen cutting margins improve, but they remain in negative territory, restraining demand and encouraging some to reduce kill hours to improve their bottom lines. But after an extended period of declines, pork cutout value losses have moderated and movement has picked up, giving traders hope a near-term low may be near. But hot weather could complicate this if it deters consumers from firing up their grills.

The new front-month August contract benefited from the $7-plus discount it holds to the cash hog index, which is projected at $98.05 tomorrow.

Technical analysis: August lean hogs poked through psychological support at $90.00, but closed above this price, leaving it as bears' initial target, followed by the June low of $88.10. Initial resistance is the downtrend drawn off the July high, which intersects at $92.14 1/2 Tuesday, followed by the July high of $96.15.

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 closed 17 1/2 to 90 cents lower in the August through February contracts. Far-deferred futures finished steady to slightly higher.

Fundamental analysis: Live cattle futures were pressured by a combination of soaring feed prices, concerns about hot temps curbing consumer demand and negative outside markets. Futures were, however, able to work off session lows late, with far-deferred contracts finding some light short-covering support.

Boxed beef prices were mixed this morning and movement was decent. But without solid strength in the product market, traders will anticipate steady to lower cash cattle trade in the Plains again this week.

Technical analysis: Friday's low at $116.30 is initial support for August live cattle futures, followed by stronger support at the June low at $115.40 and the April low at $114.70. To the upside, the June 29 high at $120.55 stands as tough near-term resistance.


Feeder cattle

Price action: Feeder cattle futures closed down the 300 point daily trading limit.

Fundamental analysis: Surging corn prices kept heavy pressure on feeder cattle futures. With corn crop conditions continuing to deteriorate and yield estimates declining, there's risk of more near-term price strength in the corn market, which opens additional downside risk in feeder cattle despite heavily oversold conditions.

Technical analysis: August feeder cattle futures gapped to a new contract low at $136.00, eclipsing the previous low from the day the contract came on the board. The next level of support is the $131.70 and $130.40 on the weekly continuation chart.

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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