Livestock Analysis (VIP) -- August 3, 2012

August 3, 2012 09:40 AM


Price action: Lean hog futures posted hefty losses again today to finish the week sharply lower than last Friday's close.

5-day outlook: Bears have firm control as the market has turned bearish technically and there are fundamental supply concerns. That suggests additional price pressure is likely next week, with the upside limited to corrective buying.

30-day outlook: Thoughts that high feed prices will force active herd liquidation is causing supply concerns. The concern is greater as expected herd liquidation will come at a time when supplies are building seasonally. Increased pork production would put a strain on demand to chew through the excess supplies.

90-day outlook: The flip side of the glut of supplies herd liquidation would cause short-term is a smaller hog factory down the road. That would mean reduced pork production in 2013.

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 remained in the two-month consolidation range this week. August futures posted slight gains for the week and ended at around a $2 premium to this week's $118 cash cattle trade, with deferred contracts posting slight losses.

5-day outlook: To build on this week's higher cash cattle prices, the boxed beef market must continue to strengthen. Packers anticipate retailers will begin to gear up for late-summer features soon, which caused them to pay up for cattle this week. Improvements in demand would help to offset increases in beef production caused by continued cow slaughter due to poor pasture conditions and high feed costs.

30-day outlook: Producers' plans to hold back a few more heifers has likely changed since the July Cattle Inventory Report was released due to worsening drought conditions. Until producers hold back heifers, the expansion phase of the cattle cycle will be delayed.

90-day outlook: The inventory report reflects the likelihood of tightening supplies, as the calf crop came in two percentage points lower than year-ago. This points to a continuing tightening of market-ready animals through next year. But as we've said before, key to building higher prices will be demand, as supplies are tight.

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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