Livestock Analysis (VIP) -- December 19, 2012

December 19, 2012 08:55 AM


Price action: Lean hog futures extended gains into the close, with February and April futures ending $1.30 to $1.17 1/2 higher, respectively. The rest of the market ended 10 to 95 cents higher.

Fundamental analysis: Traders worked to add some weather premium into prices, as a blizzard warning begins this evening and extends into tomorrow. As a result, very little hog movement is expected tomorrow. Some packers raised bids today to attract more animals to town, but most packers offered steady bids today as they say they have adequate supplies secured.

Once the weather improves, there is significant near-term downside risk for nearby futures, as February hogs ended the day at more than a $5 premium to the cash index.

Technical analysis: February lean hog futures gapped higher on the open and sharply extended gains to move above last week's high of $86.25, which is now initial support. Bulls' next objective is the November high of $88.25, which is also the contract high.

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 ended high range with gains of $1.25 and $1.30 for the December and February contracts, respectively, while deferred months ended 10 to 82 1/2 cents higher.

Fundamental analysis: Cattle futures benefited from ideas the winter storm event slated to hit the country's midsection tonight could make cattle supplies harder to come by, as well as expectations the Cattle on Feed Report on Friday will reflect tightening supplies going forward. Improvement in the boxed beef market added to the bullish tone, as Choice and Select cuts firmed this morning and movement was strong.

A weaker U.S. dollar index was also supportive of livestock buys, though losses in the stock market are telling of fiscal cliff unease.

Technical analysis: February live cattle futures broke through and settled above resistance at both the September high of $133.30 and the mid-March spike high of $134.20. These levels are new support. This impressive move opens upside potential to the contract high of $135.90.


Feeder cattle

Price action: Feeder cattle futures staged a strong rebound today and settled 82 1/2 cents to $1.40 higher for the day, which brought most contracts back to levels seen prior to yesterday's sharp bearish reversal.

Fundamental analysis: Feeder cattle futures benefited from corrective short-covering today on ideas the downside was overdone yesterday, especially considering the tightening supply prospects that Friday's Cattle on Feed Report is expected to reflect. Spillover support from live cattle and losses in the corn market and the U.S. dollar index were also supportive of feeder cattle futures.

Technical analysis: January feeder cattle saw an inside day of trade and finished near the middle of yesterday's wide trading range that marks near-term support and resistance at $152.17 1/2 and $154.60, respectively. The high-range close gives bulls the near-term advantage.

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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