Livestock Analysis -- July 26, 2012

03:13PM Jul 26, 2012
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Price action: Lean hog futures strengthened as the day progressed and ended at or near their daily highs with gains of $1.20 to $1.45.

Fundamental analysis: Lean hog futures benefited from additional signs a low is in for the pork market as prices and movement impressed yesterday. Also, the combination of recent steady to lower cash hog trade and improvement in the pork market has pulled some packer profit margins into the black. If maintained, this will eventually translate to increased packer demand for cash hogs, which would likely lead to strength in lean hog futures. However, cash hog bids today were mostly steady with few weaker bids as the break in the heat is finally encouraging producers to market hogs.

Technical analysis: August lean hogs gapped higher for the second day in a row and are headed toward a test of the July high of $96.15. Former resistance at the psychological $95.00 level is new support.

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 saw two-sided trade today, but ended high-range with gains of 25 to 57 1/2 cents.

Fundamental analysis: Cattle futures faced profit-taking pressure at times today as nearby futures remain at more than a $5 premium to the bulk of last week's cash trade. But a sharply lower dollar and expectations for cash cattle trade to get underway at higher prices this week helped the market end in positive territory. Backing this idea is much tighter showlist estimates and improved boxed beef movement this week, which signal the market is likely working on a near-term low.

Technical analysis: August live cattle finished high-range but within the bounds of their recent consolidation range, the parameters of which are last week's low and high of $115.45 and $117.25, respectively.



Feeder cattle

Price action: Feeder cattle futures opened under pressure, but as corn softened feeders rallied. Futures ended just off their daily highs with gains of $1.32 1/2 to $1.85.

Fundamental analysis: Strength in the corn market this morning resulted in a lower open for feeder cattle futures, but as corn market softened, feeder cattle futures strengthened. However, the upside will remain constrained to corrective short-covering until it is obvious corn futures have put in a top. Today's relatively mild losses in corn do not fit the bill. Sharp losses in the U.S. dollar index added incentive for traders to cover short positions.

Technical analysis: Strong support for August feeder cattle futures lies at last week's contract low of $133.10. Bulls' initial target is last week's high of $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.