Livestock Analysis -- July 27, 2012

July 27, 2012 10:42 AM


Price action: Lean hog futures ended mixed with the August and October contracts 10 and 60 cents lower, respectively, while the other moths were slightly to sharply higher. Futures ended with strong gains for the week.

5-day outlook: The pork cutout market has recently improved and packers have kept cash hog bids steady to lower, which has pulled some packer margins into the black. If this trend continues, it should translate to increased packer demand which would in turn support futures.

30-day outlook: Pork stocks in cold storage remain well above normal levels, making pork demand key going forward. Firmer pork prices signal domestic demand remains strong and global economic head winds have yet to significantly hurt pork export demand. If demand remains intact, the path of least resistance will remain pointed higher.

90-day outlook: As temps cool, hog weight gain will increase, which will increase supplies and lower prices. This year, heavy supplies could be even more apparent as lofty feed prices are forcing sow liquidation, though this would be price-supportive for hogs longer-term.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Risk is covered in the cash market for now.



Price action: Live and feeder cattle futures enjoyed strong rallies today and ended high-range with gains of $1.42 1/2 to $2.10. Today's rally helped futures to end above last week's close.

5-day outlook: Thus far, only light cash cattle sales have been reported, which could signal heavier showlists next week if cattle sales don't pick up this afternoon. If that's the case, it could thwart the cash recovery and lead to profit-taking in futures, especially given the big premium futures hold to the cash market.

30-day outlook: Improved boxed beef movement and mixed prices have recently signaled the product market may be working on a low. Traders will watch for continued improvement as supplies tighten through August. Retailers will also be working to stock their cases for the Labor Day holiday, which should boost beef demand. The risk is that high temps expected to persist through August will trim red meat demand, though this would also reduce weights.

90-day outlook: Exports of beef products have recently slowed, signaling that economic troubles in Europe may be slowing beef demand overseas. But this is countered by herd contraction that will keep supplies tight through 2012 and into 2013.

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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