Livestock Analysis (VIP) -- December 18, 2012

December 18, 2012 08:58 AM


Price action: Lean hog futures ended high-range with gains of 40 to 75 cents after favoring the upside for most of today's session.

Fundamental analysis: Lean hog futures benefited from mostly steady cash hog bids today as packers worked to secure needs ahead of the first winter storm event of the season. While packer profit margins remain near breakeven, they expect product market improvement to give them a boost early in 2013 as lofty beef prices turn consumers to pork.

Outside markets were also supportive of commodity buying today, but the fact that nearby futures are at a sharp premium to the cash hog index kept bullish enthusiasm in check.

Technical analysis: February lean hog futures' high-range close gives bulls the near-term advantage. They will target last week's high of $86.25. The December low of $83.20 remains strong 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: After posting new for-the-move highs, live cattle futures softened into the close and finished 45 to 90 cents lower.

Fundamental analysis: Early support came on spillover from yesterday's gains and positive outside markets, but futures softened amid profit-taking on uncertainty surrounding this week's cash market. While this week's cattle showlist is smaller across the Plains, traders are concerned about packer demand given negative cutting margins. Cash cattle trade isn't expected until later in the week and key to building on last week's $1 higher trade will be if the boxed beef market strengthens. Choice values slipped 76 cents this morning, which contributed to weakness in futures.

Technical analysis: February live cattle futures moved to its highest level since March by touching the $134.00 level today. Futures then slipped but remained above yesterday's low to avoid posting a bearish reversal. Support lies at the November high of $132.90, which coincides with today's low. Slipping below this level would make the December low of $129.77 1/2 bears' next target.


Feeder cattle

Price action: Feeder cattle futures opened slightly higher but then profit-taking pressure set in and futures ended 85 cents to $2.05 lower, with nearbys leading losses.

Fundamental analysis: Today's sharply lower price action was technical in nature, as early gains gave way to profit-taking, which triggered sell stops to sharply extend losses. The low-range close gives bears the advantage tomorrow morning. Followthrough pressure would confirm today's bearish reversals.

Technical analysis: January feeder cattle futures gapped slightly higher on the open and then headed lower, even filling the Dec. 11-12 gap to post a bearish reversal. Support now lies at the September high of $151.40. Violation of this level would signal a near-term high has been posted.

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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