Livestock Analysis (VIP) -- August 2, 2012

August 2, 2012 10:05 AM


Price action: Lean hog futures closed $1.07 1/2 to $1.60 lower in the August through February contracts. Far-deferred futures ended 12 1/2 to 75 cents lower.

Fundamental analysis: Lean hog futures faced active fund selling today. Fundamental pressure came from weakness in the cash hog market and concerns more pressure likely lies ahead as traders fear high feed prices will force herd liquidation. Additional pressure came from negative outside markets.

Cash hog bids were steady to $1 lower across the Midwest today despite a strong performance in the pork product market Wednesday. Packers have near-term slaughter needs secured and are trying to improve margins as they gear up for heavier pork production this fall.

Technical analysis: October lean hog futures are nearing the contract low at $77.55 after three consecutive days of sharp price pressure. If that support is violated, it would open the door for strong technical-based selling. Tuesday's high at $82.90 is near-term resistance.

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: August and October live cattle closed $1.00 and $1.02 1/2 higher, respectively. Deferred contracts ended 45 to 70 cents higher.

Fundamental analysis: Confirmation of $118 to $119 cash cattle prices in the Central and Southern Plains fueled a late rally in the cattle market. August and October live cattle led the rally as traders look to keep those contracts at a premium to the cash market given relatively tight market-ready supplies.

The cash market strength was enough to overshadow negative outside markets, which limited buying interest early. Traders' mostly fundamental focus is a positive sign for bulls.

Technical analysis: October live cattle futures posted a bullish reversal today, but must push above Monday's high at $126.45 to trigger strong chart-based buying. Above that level lies even stronger resistance at the May high of $127.05. Support is layered from today's low at $123.60 to just below the $120.00 level.


Feeder cattle

Price action: Feeder cattle futures finished with losses of 2 1/2 to 57 1/2 cents following a light and choppy day of trade.

Fundamental analysis: Feeder cattle were unable to rally today despite weakness in the corn market. That signals traders remain concerned corn prices are headed even higher. And even if the corn market is near a top, if prices remain near current levels for long it will erode demand for feeder calves.

Technical analysis: October feeder cattle futures remain pinned within the short-term trading boundaries from $138.30 to $143.60. The longer the contract holds within this range, the more likely it becomes the eventual breakout will be strong.

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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