Livestock Analysis (VIP) -- August 1, 2012

August 1, 2012 09:58 AM


Price action: August lean hog futures closed 25 cents higher, while deferred futures were steady to $1.02 1/2 lower.

Fundamental analysis: August lean hog futures were mildly supported by the discount the contract holds to the cash market. But with traders anticipating more pressure on cash hog bids moving forward, buying interest was light today and will remain limited.

Even though corn and meal future faced price pressure today, deferred lean hog futures continue to be pressured by expectations high feed costs will force herd liquidation and put more supplies on the market at a time when hog numbers build seasonally. Until this concern eases, it will be hard for fall- and winter-month lean hog futures to generate more than modest corrective buying interest.

Technical analysis: Followthrough buying today after yesterday's bearish reversal confirms a short-term top in October lean hog futures. Today's low at $79.35 is initial support, followed by the contract low at $77.55.

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 22 1/2 to 95 cents lower in all but the front-month August contract, which closed 12 1/2 cents higher.

Fundamental analysis: Price action was fairly muted as traders wait on the cash cattle market for direction. Traders remain optimistic this week's cash cattle trade will occur at $1 to $2 higher prices above last week's $114 level. August futures ended the day firmer -- and at a $5 premium to last week's cash trade.

There is increased talk that packers and feedlots are closing in on this week's trade, as packers seemingly want to secure animals sooner rather than later in the week. Strong boxed beef movement this week bodes well for firmer cash cattle trade.

Technical analysis: October live cattle posted a downside day of trade on the daily chart, but ended mid-range. Support begins at last week's low of $122.15 and extends to the July low of $119.77 1/2.


Feeder cattle

Price action: Feeder cattle futures were supported by weakness in the corn market, with futures closing 22 1/2 cents to $1.15 lower. Futures finished midrange

Fundamental analysis: Stepped-up profit-taking pressure in the corn market allowed for some short-covering in the feeder cattle pit today, but concerns that high feed costs will have a lasting impact on calf demand limited buying. August feeder cattle futures are trading at around a $5 premium to the cash index, which could limit followthrough buying tomorrow.

Technical analysis: October feeder cattle futures saw a narrow day of price action, pivoting around yesterday's high of $142.65. Futures need to return to the $146.00 level to signal a near-term low has been posted.

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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