Livestock Analysis -- July 25, 2012

July 25, 2012 09:57 AM


Price action: Lean hog futures gapped higher on the open and maintained strong gains throughout the day. Futures finished at or near session highs with gains of $1.50 to $2.25.

Fundamental analysis: Lean hog futures received an early boost from a weaker dollar and yesterday's $1.57 surge in the pork cutout value along with strong movement. This eased concerns about heat trimming consumer demand and gave weight to ideas the pork market is strengthening seasonally.

However, the market's upside will remain limited until packer profit margins turn positive. Their margins have improved recently, but they must make their way back into the black for packers to aggressively bid for supplies. Today the cash hog market was mostly steady amid light demand for tightening market-ready supplies.

Technical analysis: August lean hogs traded through and settled above near-term resistance at last week's high of $94.25, making it new support. This opens upside potential to 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 closed steady to 85 cents lower, which was mid-range for the day.

Fundamental analysis: Despite the discount August live cattle futures hold to last week's cash trade, the contract was under pressure today. Traders are concerned with demand given persistent, excessive heat.

This week's cash cattle trade is still up in the air. While showlist numbers are down significantly from last week, packers have given no indication yet they are going to actively pursue supplies. As a result, active cash trade is not likely until late Thursday or Friday.

Technical analysis: August live cattle continue to chop sideways. Resistance is layered from last week's high at $119.10 to the May high at $122.40. Support is layered from the July 17 low at $115.45 to the April low at $114.70.


Feeder cattle

Price action: Feeder cattle futures posted sharp losses, with the August contract ending down the 300-point daily limit.

Fundamental analysis: Corn futures firmed today, which sent feeder cattle plunging after a day of corrective gains Tuesday. While feeder calf supplies are tight, traders are worried surging corn prices will curb demand.

Technical analysis: Short-term boundaries for August feeder cattle futures lie at last week's contract low of $133.10 and last week's high at $139.15.

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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