Livestock Analysis (VIP) -- December 10, 2012

December 10, 2012 08:49 AM


Price action: Lean hog futures were choppy today and favored a firmer tone on the close. December hogs closed 15 cents lower, with February and April 45 and 47 1/2 cents higher, respectively.

Fundamental analysis: Ideas last week's losses were overdone provided short-covering support for lean hog futures today, but buying was limited due to concerns about the cash hog market. Cash hog bids were mixed today as some locations were in need of hogs, but packers say they will not have any difficulty securing this week's needs. As a result, a steady to weaker tone is expected to dominate the cash hog market this week unless pork cutout values surprisingly strengthen.

December lean hog futures ended today at about a $3.50 discount to the cash index, which opens the door to short-covering ahead of Friday's expiration. February lean hogs will soon have the responsibility of following the cash index more closely; the contract is trading at around a $1.80 discount to the index.

Technical analysis: February lean hog futures entered Friday's gap area. Initial resistance is at the top of the gap at $84.35. But futures need to return to the $85.00 level to signal a near-term low has been posted. Initial support is at last week's low of $83.20.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Carry all corn-for-feed and soybean meal risk in the cash market for now.



Live cattle

Price action: Live cattle futures saw a quietly traded session and ended mid-range with losses of 12 1/2 to 45 cents.

Fundamental analysis: Bears held the upper hand in the live cattle market most of the day thanks to concerns about domestic and export demand and in reaction to last week's lower cash cattle trade. Ongoing uncertainty about the fiscal cliff and its effect on the U.S. economy raise red meat demand concerns. Also, Russia's threat to not import U.S. beef or pork that contains ractopamine, a feed additive that is legal for use in the U.S., raises export concerns.

But selling interest was also limited by a solid start to the week in the boxed beef market this morning, along with tighter showlist estimates this week. Showlist supplies are estimated down 12,000 head in both Nebraska and Kansas, steady in Colorado and up 10,000 head in Texas compared with week-ago.

Technical analysis: February live cattle posted a downside day of trade but the contract didn't do any chart damage, as it respected psychological support at $130.00. Downtrending resistance drawn off the late-November high intersects around $130.70 Tuesday.


Feeder cattle

Price action: Feeder cattle futures settled near session highs with gains of 70 cents to $1.05.

Fundamental analysis: Feeder cattle futures were again supported by weakness in the corn market, which helped the market extend its recent rally. Technically, feeder cattle futures appear to have put in a near-term low as the market moved through near-term areas of resistance again today. This idea is backed by the fundamentals, too; supplies are expected to tighten in 2013.

Technical analysis: January feeder cattle futures continued their march toward the October high of $150.80, followed by the double-top September high of $151.40. But ahead of these levels, the contract will face resistance at the psychologically significant $150.00 mark.

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: Carry all corn-for-feed and soybean meal risk in the cash market for now.


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