Livestock Analysis (VIP) -- August 9, 2012

August 9, 2012 09:47 AM



Price action: Lean hog futures enjoyed gains for most of today's session, but buying eased late and futures settled low-range and narrowly mixed.

Fundamental analysis: Lean hogs enjoyed followthrough buying on recent pork movement improvement. But buying interest was largely limited to short-covering as this has not been accompanied by pork price strength. With supplies building seasonally and some packers again cutting in the red, the pork market must strengthen to prevent the cash and futures markets from further declines.

Technical analysis: October lean hog futures gapped higher on the open, but pressure late in the session allowed the contract to narrow the gap, the bottom of which (at $74.90) is near-term support. The contract must close above the late-July high of $82.90 to signal a short-term low is in place.

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 favored the upside most of the day, but futures softened into the close to settle narrowly mixed and low-range.

Fundamental analysis: Live cattle futures saw choppy trade as traders wait for cash cattle trade to get underway. Boxed beef market strength, tighter showlist estimates and sales at higher prices in the dressed markets all point to higher prices compared to last week's $118 in the Plains. But traders already have this factored into prices, which left futures vulnerable to some light profit-taking today.

Technical analysis: October live cattle futures inched closer toward the July high of $126.45 today, which acts as near-term resistance. Uptrending support drawn off the July to August lows roughly coincides with the psychological $125.00 level tomorrow.


Feeder cattle

Price action: Feeder cattle futures settled at or near their daily lows with losses of 67 1/2 cents to $1.27 1/2.

Fundamental analysis: Feeder cattle futures faced pressure from strength in the corn market today, which along with lofty wheat and soymeal prices point to high feed costs. Add to that pastures that are deteriorating due to drought and demand for feeder cattle is limited.

Dollar strength added incentive for traders to lighten positions, especially with the potential for sharp reactions in the corn market to any USDA report surprises tomorrow.

Technical analysis: October feeder cattle futures remain within the boundaries of the short-term range from $138.30 to $143.60. A breakout from this range would trigger the next trending move.

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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