Livestock Analysis (VIP) -- December 20, 2012

December 20, 2012 09:34 AM


Price action: Lean hog futures were under pressure throughout the day, but contracts settled well off their lows and near session highs with losses of 12 1/2 to 45 cents in the February through August contracts. Farther deferred months saw slightly greater losses.

Fundamental analysis: Broad risk aversion across the commodity sector encouraged profit-taking in the lean hog market today after strong gains the day before. Softer pork prices and movement added to pressure as it pulled packer profit margins deeper into the red.

But the Midwest storm has disrupted hog transportation as well as slaughter schedules, which kept the cash market steady today despite the fact that packers are cutting in the red.

Technical analysis: February lean hog futures saw an inside day of trade. Bulls' initial target is yesterday's high of $86.70. The bottom of yesterday's upside gap at $85.45 is near-term 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 faced pressure throughout today's session and ended mid-range with losses of 52 1/2 cents to $1.00.

Fundamental analysis: Traders spent the day booking profits after yesterday's impressive rally and ahead of the Cattle on Feed Report tomorrow. While the report is expected to favor market bulls, traders are hesitant to add risk.

Light cash cattle trade began in Texas and Kansas today at $126, which is up $1.50 to $2.00 from week-ago levels. But nearby futures are already several dollars above these prices, limiting the impact of higher cash trade.

Technical analysis: February live cattle settled near the bottom of yesterday's trading range, leaving near-term support at the November high of $132.90 and resistance at yesterday's spike high of $134.40.


Feeder cattle

Price action: Feeder cattle futures settled 47 1/2 cents to $1.20 lower, with nearby contracts leading to the downside. This was a low-range finish for most contracts.

Fundamental analysis: Profit-taking ultimately led to a moderately lower close for feeder cattle futures today, despite the market displaying early resistance thanks to ongoing weakness in the corn market. Adding pressure was the January contract's nearly $4 premium to the cash index.

Technical analysis: Feeder cattle futures briefly poked through psychological support at $152.00, but the contract settled above that price, leaving it as near-term support, followed by the September double-top high of $151.40. Tuesday's high of $154.60 is still strong resistance.

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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