Livestock Analysis -- July 24, 2012

July 24, 2012 10:20 AM


Price action: Lean hog futures ended 40 cents to $1 lower, which was anywhere from a mid- to low-range close.

Fundamental analysis: Hog futures were pressured by a combination of weather concerns and negative outside markets. The weather concerns are tied to the persistent heat. While the heat is limiting weight gains, it's also slowing hog movement. Traders fear once temps break, the flow of hogs to slaughter plants will suppress the cash hog market. In fact, packers are reluctant to bid for cash hogs now amid negative margins in anticipation hog movement will pick up soon. There are also concerns the persistent excessive heat will curb consumer red meat demand.

Cash hog bids were mixed today, although most locations reported steady to weaker bids. Packers are again planning a small Saturday kill given negative margins.

Technical analysis: August lean hog futures filled the July 19 chart gap at $92.80, signaling a short-term technical top is in place. The next level of strong chart support lies at the July 16 low of $89.75. Last week's high at $94.25 is near-term resistance.

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 opened under pressure, but the market improved as the day progressed to finish narrowly mixed.

Fundamental analysis: Live cattle futures benefited from some light short-covering today as the boxed beef market has given some signs a short-term low may be near as movement has recently picked up. But more than this morning's mixed beef prices and solid movement will be needed to inspire confidence in the long side of the market.

Late-week cash cattle trade is expected as heat clouds the outlook. While showlist estimates are down sharply this week and high temps will slow weight gain and make feedlots reluctant to move cattle, it could also trim consumer demand. Futures action will likely remain choppy until more concrete signs arise regarding cash cattle trade.

Technical analysis: August live cattle futures ended high-range but within their recent consolidation trading range that is bound on the upside by last week's high and low of $119.10 and $115.45, respectively.



Feeder cattle

Price action: Feeder cattle futures ended high-range with gains $2.02 1/2 to $2.75.

Fundamental analysis: Gains in the U.S. dollar index initially limited buying interest in the feeder cattle market to short-covering, but as selling in the corn market mounted and many corn contracts traded down their 40-cent limit, feeder cattle futures surged. For feeders to recoup recent, heavy chart losses, the corn market must prove a high is in place.

Technical analysis: August feeder cattle futures remain within the bounds of last week's contract low of $133.10 and last week's high of $139.15, which are near-term support and resistance, respectively.



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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