Livestock Analysis (VIP) -- August 16, 2012

August 16, 2012 10:26 AM


Price action: Lean hog futures traded in a choppy range today and ended in a similar fashion. Most contracts ended low-range.

Fundamental analysis: Lean hog futures benefited from short-covering on ideas the downside was overdone yesterday and the sharp discount futures hold to the cash hog index. But that was the extent of buying interest as supplies are building seasonally and there are concerns of herd liquidation, which will pressure the pork product and cash hog markets. Pork movement has recently strengthened; that must continue to keep a floor under the market.

Technical analysis: October lean hog futures again tested the psychological $75.50 mark (the third time in five days), but were unable to break through this strong support level. A corrective bounce would have bulls eyeing Tuesday's high of $77.70.

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 softened late in the session to end 80 cents to $1.20 lower in 2012 contracts, while farther deferred months saw lighter losses.

Fundamental analysis: Expectations are for cash cattle trade to take place above week-ago thanks to strength in the boxed beef market and tighter showlist estimates. But this is largely factored into prices, leaving the market vulnerable to profit-taking ahead of the close. Also, moderation regarding the amount of beef price gains this morning along with more modest movement this week has traders watching for signs of a top.

Plus, traders evened positions ahead of USDA's Cattle on Feed Report Friday afternoon. More position squaring is likely tomorrow unless cash cattle trade develops.

Technical analysis: October live cattle ended low-range but just above psychological support at $125.50. Yesterday's four-month high of $127.22 1/2 is resistance.



Feeder cattle

Price action: Feeder cattle futures ended just pennies off their daily lows with losses of $1.25 to $1.75.

Fundamental analysis: Another move higher in the corn market after recent signs a top was near proved too much for feeder cattle futures today and led to heavy profit-taking after recent strong corrective gains.

Technical analysis: September feeder cattle futures traded into Tuesday's upside gap area, but left it open, keeping Monday's high of $142.72 1/2 as support, followed by the bottom of Monday's upside gap at $140.25. Yesterday's high of $145.12 1/2 is resistance.

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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