Livestock Analysis (VIP) -- August 17, 2012

August 17, 2012 10:09 AM


Price action: Lean hog futures finished 10 to 70 cents higher in most contracts today. For the week, most contracts managed slight gains.

5-day outlook: Hog numbers are starting to build and herd liquidation is underway. That will keep pressure on the cash hog market. It's also likely to weigh on the product market as packers are dealing with excess supplies.

30-day outlook: Fall- and winter-month lean hog futures are trading at a sharp discount to the cash index. But given supply concerns, traders are not worried by the big discount. The upside will be limited to corrective buying unless the cash market vastly outperforms expectations. But with that said, traders likely have just about a worst-case scenario built into futures, meaning downside risk should also be limited.

90-day outlook: Once the seasonal buildup in hog numbers has run its course, the price outlook for the hog market will improve. While herd liquidation means more supplies now, it reduces the "pig factory" for next year.

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 ended with slight gains in most contracts today and with a mix of slight gains or losses compared to last Friday's close.

5-day outlook: Boxed beef prices continued to surge this week, encouraging packers to pay firmer prices for cash supplies late today. But the high prices have slowed movement notably. As a result, traders will be watching for a top in the boxed beef market and may reduce risk accordingly via futures sales.

30-day outlook: However, the cattle market's downside is also limited as supplies are expected to tighten -- even more so than expected earlier this year as a result of high feed costs and drought-stricken pastures. Today's Cattle on Feed Report showed Placements at 90% of year-ago levels.

90-day outlook: The tightening supply situation should keep beef prices at relatively high levels. Key will be whether such prices meet resistance from consumers dealing with a weak economy. Generally speaking, however, beef demand has proved quite resilient to the economic headwinds.

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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