Livestock Analysis -- Advice (VIP) -- November 12, 2012

November 13, 2012 12:20 AM
 

Hogs

Advice: Exit the 50% 4th-qtr. soybean meal coverage in long Dec. meal futures and the 25% 1st-qtr. coverage in long March meal futures.

Price action: Lean hog futures faced pressure throughout the day, but December through June futures ended mostly high-range and steady to 42 1/2 cents lower. Far-deferred months saw greater losses.

Fundamental analysis: Ongoing dollar strength and broad risk aversion encouraged light profit-taking in the hog market after strong gains last week. Plus, demand is likely to be limited this week as some plants are closed in honor of Veterans Day today and pork demand typically slumps ahead of the Thanksgiving holiday. As a result, cash hog bids were mostly $1 lower despite strong packer profit margins, as they are having no trouble securing needed supplies.

There is also some talk that lower feed costs will encourage hog producers to rebuild herds, though this is contrary to USDA's latest projection for lower pork production in 2013.

Technical analysis: February lean hog futures posted an inside day of trade, leaving near-term resistance at Friday's high of $86.50, with initial support at the October high of $86.05, followed by the Nov. 1 high of $85.32 1/2.

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

Feed needs: NEW ADVICE: Exit the 50% 4th-qtr. soybean meal coverage in long Dec. meal futures and the 25% 1st-qtr. coverage in long March meal futures. Carry all corn-for-feed and soybean meal risk in the cash market for now.

 

Live cattle

Advice: Exit the 50% 4th-qtr. soybean meal coverage in long Dec. meal futures and the 25% 1st-qtr. coverage in long March meal futures.

Price action: Live cattle futures settled steady to 95 cents lower following a quiet day of trade.

Fundamental analysis: Heavy price pressure on grain futures spilled over to live cattle futures today. That triggered light liquidation pressure, but there was also talk that falling feed prices could spur some herd rebuilding, which is why far-deferred live cattle futures led losses. Additional pressure on live cattle came amid ongoing concerns with beef demand as the East Coast recovers from storm damage and worries consumers will spend less on top-end meat cuts with the fiscal cliff looming. But selling interest was limited by tightening supplies.

Technical analysis: The initial trading boundaries for December live cattle are at $124.55 and $126.60, with slightly broader boundaries at $123.95 and $128.32 1/2. The outer bounds of the six-plus month sideways trading range are at $122.40 and $131.15.

Feeder cattle

Price action: November feeder cattle futures closed 20 cents lower, while the other months were 32 1/2 to 50 cents higher.

Fundamental analysis: Feeder cattle futures were supported by sharp losses in the corn market. But a weak tone in live cattle limited buying interest to modest short-covering.

Technical analysis: January feeder cattle futures are hemmed in the lower end of the extended, sideways range. Last week's low at $144.90 is initial support, followed by the July low at $144.45 and the contract low at $142.37 1/2.

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: NEW ADVICE: Exit the 50% 4th-qtr. soybean meal coverage in long Dec. meal futures and the 25% 1st-qtr. coverage in long March meal futures. Carry all corn-for-feed and soybean meal risk in the cash market for now.

 

 

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