Livestock Analysis (VIP) -- December 14, 2012

December 14, 2012 09:07 AM


Price action: December lean hog futures expired 12 1/2 cents lower at $82.00. Losses in the other contracts ranged from 17 1/2 cents to $1.00. For the week, lean hog futures posted strong gains as the market rebounded from recent, sharp losses.

5-day outlook: After trading steady to firmer today and given profitable packer margins, the cash hog market is expected to be firmer again early next week. That should provide futures with solid fundamental support. But the February contract takes over lead-month status at a nearly $3 premium to the cash market, which could encourage fresh selling. Plus, there's a head-and-shoulders formation on the daily chart, which suggests topping action.

30-day outlook: It's hard to get a good read on slaughter numbers or pork demand through the holidays due to disrupted schedules. As a result, it becomes easier for hog futures to lose their fundamental focus. That may be even more so the case this year with the fiscal cliff looming and given global economic uncertainties.

90-day outlook: Hog supplies will tighten with the start of the new year. While declines will be gradual at first, pork production will slide seasonally into mid-year, which is reflected with the premium spring and summer-month contracts hold to nearby futures. For the year, pork production is forecast to decline by 1.7% from this year.

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.




Price action: Live cattle futures were supported into the close by news cash cattle trade was picking up at prices $1 higher than last week after sales started yesterday at levels steady to 50-cents higher than last week. February live cattle ended the week $2.20 higher than last week's close to bump up against the top of the long-lasting choppy trading range.

5-day outlook: In order to build on this week's higher price performance, the boxed beef market must continue to strengthen. Beef prices were choppy this week, but movement was strong, which signals retailers are preparing for a round of post-holiday beef features. Traders will also be readying for the monthly Cattle on Feed Report to be released next Friday, which will remind traders of the tightening supply situation.

30-day outlook: Year-to-date cattle slaughter is running 3.7% behind last year and total beef production is down 1.4% from last year due to higher carcass weights. USDA projects beef supplies in 2013 will tighten by nearly 5% compared to this year, which would push boxed beef and cash cattle prices to record highs.

90-day outlook: The 10-year cattle cycle is set to peak in 2013, but drought relief is needed to encourage producers to build herds. If the drought continues, more cows and heifers will enter the slaughter mix. Either way, prices are pointed higher in the year ahead.

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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