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Livestock Analysis (VIP) -- August 10, 2012

14:12PM Aug 10, 2012



Price action: After enjoying gains most of the session, lean hog futures softened into the close to end steady to 42 1/2 cents lower in 2012 contracts while deferred months were slightly to moderately higher. All but the soon-to-expire October contract ended with losses for the week.

5-day outlook: Upside potential for lean hog futures will likely remain limited next week as supplies are building seasonally and the trend in pork prices has been to the downside. Market bulls are hopeful recent strong movement is indicative that Labor Day buys will soon support pork prices, but futures must rise significantly to signal the market has put in a low.

30-day outlook: Supplies will continue to build through the end of the year, limiting upside potential for futures and the cash market. And pressure may be heavier than usual as high feed costs are encouraging producers to be more aggressive with marketings and in some instances, liquidate herds.

90-day outlook: However, over the long-term this will have the affect of tightening supplies. USDA today lowered its 2012 and 2013 pork production estimates from last month and made only a slight adjustment to its export projection. USDA also raised its average 2012 cash hog price projection by $2 on the bottom end of the range and $1 on the top to $62 to $63.

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

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



Price action: Live cattle futures closed lower with the exception of the April 2013 contract, which was 10 cents higher. Feeder cattle were slightly higher on support from weakness in the corn market. For the week, live cattle posted slight gains.

5-day outlook: Active cash cattle trade failed to develop before futures stopped trading for the week, although traders are anticipating higher cash trade late this afternoon. Depending on what price level cash cattle trade at, the premium August futures hold to the cash market may be wiped out. If that's the case, it would open fresh upside potential next week -- if the boxed beef market continues to strengthen and gives packers incentive to extend cash cattle bids.

30-day outlook: Based on recent trade in the boxed beef market, retailers are gearing up for active beef features for Labor Day. After that buying is complete, there is concern retailer demand will slow, especially if prices continue to climb. A letup in beef buying after Labor Day features are secured could put a short-term top in the market.

90-day outlook: From a supply perspective, the downside is limited once the market has posted a short-term top as market-ready cattle numbers are relatively tight. While USDA lowered its 2012 and 2013 beef price projections, it signaled prices will remain strong overall amid tight supplies.

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.