Livestock Analysis -- July 17, 2012

July 17, 2012 09:46 AM



Price action: Lean hog futures ended 47 1/2 cents to $1.52 1/2 lower on concerns about domestic demand.

Fundamental analysis: The cash hog market was steady to $2 lower again today, raising concern about pork demand. Packers are working to improve profit margins since pork cutout values are stagnant, but retailers that didn't aggressively book pork for July when prices were higher are now backing away because sales have slowed further due to hot temps. Export demand remains strong, but it is not enough to offset the downturn in domestic demand.

Pressure on August lean hogs was limited by the discount it holds to the cash index. The contract is currently trading at around a $8 discount to reflect negative attitudes.

Technical analysis: August lean hog futures briefly traded above yesterday's high of $90.75 but weakened. The low-range close gives bears the upper hand heading into tomorrow's session. Initial support is at yesterday's low of $89.75 and extends to the June low of $88.10.

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 $1.32 1/2 lower in the August contract, while deferred months settled low-range with losses of 37 1/2 to 97 1/2 cents.

Fundamental analysis: Light to moderate cash cattle trade got underway in Nebraska (where showlists are heavier) today at $113, which caused the lead-month contract to soften into the close. This led to the start of light trade in Texas and Kansas at the same price. This is $1 to $2 below the bulk of last week's trade, signaling producers were eager to move cattle early due to recent heat.

Boxed beef action improved this morning; Choice cuts firmed 25 cents and Select cuts surged $1.65 on solid movement of 107 loads. This helped to limit pressure on deferred contracts as it again sparked ideas the beef market may be working on a low.

Technical analysis: August live cattle softened to within a nickel of key support at the June low of $115.40. A move through this level would put next support at the 2012 low of $114.70. Resistance stands at $117.85, which marks the top of last week's downside gap.


Feeder cattle

Price action: Feeder cattle futures settled settled mid- to high-range, with still-heavy losses of $1.80 to $2.45.

Fundamental analysis: While corn futures saw choppy trade at times throughout the day and into the close, market bulls had the reins the majority of the session, making it difficult for feeders to find any buying interest outside of light short-covering. Also limiting demand for feeder cattle futures is USDA's confirmation of deteriorating pasture and range conditions. Yesterday it rated 54% of this land "poor" to "very poor."

Traders have thus far ignored the extremely oversold status of feeder cattle futures, but this could shift into focus if it appears the corn weather rally has run its course.

Technical analysis: August feeder cattle futures again gapped to a new contract low of $133.10 today. Next support is layered every 50 cents lower from $133.00. The contract has plummeted for more than $15 since the start of July.

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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