Livestock Analysis (VIP) -- August 13, 2012

August 13, 2012 09:37 AM



Price action: Lean hog futures closed slightly to sharply higher in all but some of the far-deferred contacts. October and December futures led today's rally, each rising $1.52 1/2.

Fundamental analysis: Ideas recent downside pressure was overdone and news the government will spend up to $170 million on meat purchases, including pork, to aid drought-hit producers, triggered short-covering in hog futures today. Additional support came from the big discount fall- and winter-month contracts hold to the cash hog market. August lean hog futures expire Tuesday, meaning October hogs will be the new lead-month contract.

Cash hog bids were steady to lower across the Midwest today on limited packer demand. Pork plants are bought ahead on slaughter needs into mid-week and don't foresee any problems obtaining remaining needs. Plus, plants are trying to improve margins as they gear up for seasonally heavier kill numbers. That should keep the cash market under light pressure.

Technical analysis: To signal a short-term low has been posted, October lean hog futures must close above old support at $77.55. Additional resistance is layered from $78.55 to the July high at $84.15. Double-bottom, contract-low support is at $74.90.

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 ended high-range with gains of 35 cents to $1.22 1/2, with nearby contracts leading gains.

Fundamental analysis: Cattle traders extended the premium futures hold to last week's firmer cash cattle trade of $119 to $120 thanks to continued improvement in the boxed beef market and tightening supplies. Choice values rose another $1.14 and Select cuts were 6 cents higher this morning, though movement was light.

Technical analysis: October live cattle futures traded through the July high of $126.45, but the contract settled just below this level. New resistance is today's high of $126.70, followed by the May high of $127.05. Support starts at the Aug. 2 reaction low at $123.60..


Feeder cattle

Price action: Feeder cattle futures gapped sharply higher on the open and traded in a very narrow range to finish with gains of $1.97 1/2 to $2.95.

Fundamental analysis: Pressure on corn futures translated to some buying interest in feeder cattle futures. However, volume was very light as the market has not ruled out another move higher for corn as the crop remains in worrisome condition.

Technical analysis: October feeder cattle futures traded through resistance at the July 19 high of $143.60, but settled below this level. A close above this level would have bulls working to fill the July 16 chart gap at $144.00.

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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