Livestock Analysis (VIP) -- August 7, 2012

August 7, 2012 03:05 PM


Price action: Lean hog futures ended 12 1/2 cents to $1.20 higher in all but the October contract, which ended 25 cents lower.

Fundamental analysis: August lean hog futures were supported by strength in the pork cutout market, which encouraged traders to narrow the discount it holds to the cash index. The contract ended the day at about a $3.80 discount to the index, which leaves more room to the upside if the pork market signals a near-term low has been struck.

The cash hog market was mostly steady today, which is an improvement from some weaker bids being reported yesterday. Packers are enjoying improved profit margins, but will be hesitant to raise bids this week due to a seasonal increase in supply and indications that sow slaughter is ongoing.

Technical analysis: October lean hog futures posted a downside day of trade on the daily chart to post a fresh contract low of $74.90. Followthrough selling tomorrow would layer support every dollar lower. To signal a near-term low has been posted, the contract needs closes above last week's high of $82.90.

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 traded in a narrow range today and ended narrowly mixed, which was good for a mid- to low-range close.

Fundamental analysis: Traders are waiting on direction from the cash cattle market. Initial signs point to prices above last week's $118 as the boxed beef market is off to a strong start both in terms of movement and prices and showlist estimates are 5,000 head tighter than last week. But the fact that futures are already at a premium to the cash market limited buying interest.

Technical analysis: October live cattle futures remain range-bound, with near-term support at last week's low of $123.60 while resistance is at last week's high of $126.45.

Feeder cattle

Price action: Feeder cattle futures traded on both sides of unchanged today, but ended steady to 22 1/2 cents higher.

Fundamental analysis: Feeder cattle futures got off to a lower start due to early strength in the corn market, but as corn softened, buying interest in feeder cattle futures mounted and futures turned higher. However, buying interest remains limited to short-covering as choppy action in the corn market does not rule out another move higher and drought conditions along with high feed prices limit feeder cattle demand.

Technical analysis: October feeder cattle futures remain within the bounds of their recent, choppy trading range, which is bound by the July 19 high of of $143.60 on the upside and the contract low of $138.30 on the downside.

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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