Livestock Analysis (VIP) -- December 12, 2012

December 12, 2012 08:50 AM


Price action: Lean hog futures were choppy most of the day, but the market rallied after midday to end 90 cents to $1.50 higher in all but the December contract, which settled 2 1/2 cents lower for the day.

Fundamental analysis: Buying interest in lean hog futures was limited most of the day due to a steady to lower cash hog market. But short-covering increased late in the session as the dollar softened and the stock market improved thanks to news the Fed launched another round of bond purchases to stimulate the economy.

Support also came from hopes export demand is stronger than expected. USDA data compiled by the U.S. Meat Export Federation showed U.S. pork exports increased 8.7% by volume over last year for October, setting a new monthly record in terms of value. Recent strong movement of pork signals domestic demand is also solid.

Technical analysis: February lean hogs posted a strong upside day of trade to end steady with last Wednesday's pre-selloff level. Followthrough buying would have bulls eyeing resistance layered from the October high of $86.05 to the July high of $86.20. Last week's low of $83.20 is support.

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 closed mixed with the December, February and August contracts slightly lower, while other months closed mildly firmer.

Fundamental analysis: Price action was light and choppy in the cattle market as traders were reluctant to make major moves ahead of the Fed announcement on monetary policy and economic stimulus. With the Fed staying its course and given a limited market reaction, price action in live cattle remained choppy into the close.

The other factor which limited traders' willingness to move the market much today was inaction in the cash cattle market. Bids and asking prices remain far apart, while packer demand for cash cattle is thought to be light and feedlots are not in any hurry to move cattle at lower prices again this week. This suggests active cash cattle trade is not likely until Friday.

Technical analysis: February live cattle futures posted a modest inside day down following yesterday's big upside push. Initial resistance stands at Tuesday's high at $132.50, with stronger resistance at the November high of $132.90 and the September high at $133.30. Solid near-term support is at the Dec. 5 low at $129.77 1/2.


Feeder cattle

Price action: Feeder cattle futures closed steady to 67 1/2 cents higher, although that was mid- to low-range for the day.

Fundamental analysis: Weakness in the corn market supported feeder cattle futures throughout the day. But a lack of solid buying interest in live cattle and the trimming of losses in corn ahead of feeder cattle closing, caused the market to come well off its session highs.

Technical analysis: January feeder cattle futures followed up yesterday's upside breakout from the extended, choppy range with additional price strength today. Another higher close tomorrow would confirm an upside breakout. Key near-term support is old resistance at $151.40. As long as that level isn't quickly breached, bulls have the upper hand.

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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