Livestock Analysis -- July 18, 2012

July 18, 2012 10:19 AM


Price action: Lean hog futures posted moderate to sharp gains, but in late trade eased off session highs. August hogs led today's strong price rally.

Fundamental analysis: Hog futures were primarily supported by sharp to limit-up gains in the cattle market today, which triggered short-covering. Additional support came from hopes the pork product market is in the process of putting in a short-term low as the cutout value firmed Tuesday and movement was strong. This combination of factors encouraged traders to narrow the discount futures hold to the cash index.

Technical analysis: August lean hog futures pushed above the downtrend from the July 2 high. Bulls' next objective is $93.50, followed by the July 2 high at $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 $2.60 to their $3.00 limit higher to post a big upside day of trade on the daily charts.

Fundamental analysis: Live cattle were supported by indications Japan is closer to easing restrictions on U.S. beef exports. Japan's Food Safety Commission is assessing the risk of easing its current rule that allows U.S. beef from cattle 20 months or younger to 30 months. Doing so would open up trade substantially.

Meanwhile, cash cattle trade is thought to be complete for the week at $113, which is down $1 to $2 from last week. Feedlots moved cattle yesterday on concerns that high temps were slowing domestic beef demand. August live cattle are trading at a $5 premium to this week's cash market, suggesting the market anticipates a near-term cash low has been struck.

Technical analysis: August live cattle need to move above the late-June high of $120.55 and then the May high of $122.40 to signal a near-term low has been posted and to move out of the two-month consolidation range. Key support lies at the April low of $114.70.


Feeder cattle

Price action: Feeder cattle futures ended sharply to mostly their $3.00 limit higher on spillover from live cattle.

Fundamental analysis: Additional support for feeders in early trade came from weakness in the corn market. But as corn firmed, feeder cattle futures continued to strengthen to help correct the oversold condition of the market. August feeders are trading at around a $2 discount to the cash index, suggesting the potential for more price strength in futures tomorrow.

Technical analysis: August feeder cattle futures need to at least complete a 25% retracement of the decline from the June high to signal a near-term low has been posted. That resistance is near $140.00.

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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