Livestock Analysis (VIP) -- August 6, 2012

02:27PM Aug 06, 2012
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Price action: Lean hog futures got off to a choppy start, but selling interest increased as the day progressed and futures ended steady to $1.05 lower, which was low-range for the day.

Fundamental analysis: Plentiful near-term supplies weighed on the cash hog market, which in turn pressured hog futures today. This morning, selling interest in nearby contracts was limited by the discount they hold to the cash hog index, but bears ultimately pulled the market lower.

For lean hog futures to reverse their recent downward trajectory, the pork market must improve notably to boost packer demand for hogs. But with hog numbers increasing seasonally and some herd liquidation likely, demand for cash hogs will be somewhat limited even if the pork market strengthens.

Technical analysis: October lean hog futures hit a new contract low of $75.10 and settled just off this level, leaving it as support, closely followed by the psychological $75.00 level. But the contract is oversold according to the 9-day Relative Strength Index; a corrective bounce would have bulls targeting former support at the July low of $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 ended narrowly mixed, but posted a low-range close on spillover from lean hog futures.

Fundamental analysis: Pressure on live cattle futures was limited by positive outside markets. Weakness in the U.S. dollar index and strength in the U.S. stock market improved traders' attitudes. But buying was limited by ongoing weakness in the hog pit. Another choppy day is likely tomorrow as traders form cash market expectations.

Boxed beef prices started the week on solid footing, but must continue to strengthen in order to build on last week's $118 to $119 cash cattle trade.

Technical analysis: Near-term boundaries for October live cattle are resistance at last week's high of $126.45 and support at last week's low of $123.60. Violation of support would make bears' next target the July low of $119.77 1/2.



Feeder cattle

Price action: Feeder cattle futures benefited early from weakness in the corn market for much of the day, but as corn came off session lows, feeder cattle weakened to close 7 1/2 to 52 1/2 cents lower and on or near session lows.

Fundamental analysis: Price action remains closely connected to the day-to-day price fluctuations in the corn market. Therefore, the upside will remain limited to modest short-covering until the corn market signals it has struck a major high.

Technical analysis: October feeder cattle posted an inside day of trade on the daily chart to remain within the month-long consolidation range. Contract-low support lies at $138.30.

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.