Livestock Analysis (VIP) -- Advice -- November 1, 2012

November 1, 2012 09:57 AM
 

Hogs

Advice: Cover 50% of remaining 4th-qtr. protein needs in long Dec. soybean meal futures and cover 25% of expected 1st-qtr. needs in long March meal futures. Our fills were $487.10 in December futures and $468.50 in March futures.

Price action: Lean hog futures enjoyed gains most of the session but softened after midday to end 32 1/2 to 47 1/2 cents lower in the December through April contract and narrowly mixed in deferred futures.

Fundamental analysis: For much of the day, lean hog futures enjoyed gains thanks to strength in the pork cutout market. Firmer prices boosted packer profit margins, which in turn boosted demand for market ready hogs. Also encouraging this was eastern Corn Belt plants buying for a large weekend kill to make up for downtime during the Superstorm Sandy event.

But seasonally expanding supplies, a firmer U.S. dollar index and ongoing uncertainty about how East Coast destruction will affect meat demand encouraged profit-taking late in the day.

Technical analysis: December lean hogs posted a bearish reversal today, taking out yesterday's high but then failing to find buying interest and softening to close below yesterday's low. Followthrough pressure tomorrow would have bears targeting Monday's low of $77.55, followed by the bottom of the Oct. 2 upside gap at $75.32 1/2.

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

Feed needs: NEW ADVICE: 50% of remaining 4th-qtr. protein needs are covered in long Dec. meal futures and 25% of expected 1st-qtr. needs are covered in long March meal futures. Our fills were $487.10 in December futures and $468.50 in March futures. Carry all corn-for-feed risk in the cash market for now.

 

Live cattle

Advice: Cover 50% of remaining 4th-qtr. protein needs in long Dec. soybean meal futures and cover 25% of expected 1st-qtr. needs in long March meal futures. Our fills were $487.10 in December futures and $468.50 in March futures.

Price action: Live cattle futures finished 30 to 65 cents lower, which was in the lower end of today's range and near session lows for some contracts.

Fundamental analysis: A sluggish performance in the boxed beef market following sharp price declines Wednesday weighed on live cattle futures late in the session. While boxed beef prices remain historically strong, traders are concerned they will slide near-term despite tightening supplies as East Coast demand is likely to wane due to Superstorm Sandy.

Cash cattle trade is thought to be wrapped up for the week, although sales levels were light. Bulls suggest that means packers may need more animals next week. But bears counter that slowing beef demand limits packers' needs.

Technical analysis: Many live cattle contracts posted bearish reversals today. That sets up a near-term test of support at the October low of $124.60 for December live cattle. Below that, support is layered from the September low at $123.95 to the April low at $122.40.

 

Feeder cattle

Price action: Feeder cattle futures dropped sharply late to finish $1.50 to $2.35 lower and on or near session lows.

Fundamental analysis: Feeder cattle futures were pressured by strength in the corn market. But as buying interest in the corn market dried this afternoon, feeders faced pressure from falling live cattle prices and concerns about near-term demand.

Technical analysis: January feeder cattle futures posted a bearish reversal and have moved to the lower end of the extended, sideways trading range. Support extends from the October low at $145.95 to $144.45. Contract-low support is 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: 50% of remaining 4th-qtr. protein needs are covered in long Dec. meal futures and 25% of expected 1st-qtr. needs are covered in long March meal futures. Our fills were $487.10 in December futures and $468.50 in March futures. Carry all corn-for-feed risk in the cash market for now.

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