Livestock Analysis (VIP) -- December 21, 2012

December 21, 2012 08:37 AM


Price action: Lean hog futures ended 20 to 45 cents higher for the day, which was at or near session highs. Futures ended with strong gains for the week.

5-day outlook: Next week will feature light trading volume. which can lead to unpredictable price action. While the cash hog market will likely soften next week due to holiday-shortened slaughter schedules, a brighter outlook in 2013 may make traders unwilling to do more than take profits out of the market. This afternoon's Cold Storage Report featured record pork stocks, but they weren't as big as anticipated, which should limit price pressure from the data.

30-day outlook: Hog supplies are beginning to tighten, which should support the cash and product markets. The pork market will likely also be supported by what appear to be retailer plans to feature pork to start the new year, especially if fiscal unease persists (likely).

90-day outlook: Hog supplies will continue to tighten into spring. And as cattle are expected to hit their 10-year cycle high in 2013, even higher beef prices should keep domestic pork demand strong. Also, in its December balance sheet adjustment, USDA indicated it expects pork production to decline by 403 million lbs., while it sees exports falling just 3 million lbs. from 2012, pointing to ongoing export demand strength.

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 closed slightly higher today in all but the April contract, which was slightly lower. For the week, winter- and spring-month contracts posted strong gains, while far-deferred contracts finished lower.

5-day outlook: Holiday trade will be in full swing next week, meaning trading volume will likely thin and price action is unpredictable. What happens with the fiscal cliff talks will likely have as much of an impact on price action as fundamentals. The Cattle on Feed Report data may put mild pressure on nearby live cattle futures Monday, but shouldn't have a major market impact.

30-day outlook: Traders built some premium into the market this week as the first winter storm rolled through the Central Plains and Midwest. But the premium is not overly strong, especially given the tight supply situation. Unless that changes, expect the market to get a boost from the next winter storm, as well. Based on the extended weather outlook, however, a relatively mild winter is likely.

90-day outlook: Cattle numbers will continue to tighten relative to year-ago through the new year. That will provide a very solid floor of support under the market. How far cattle futures extend to the upside will depend largely on demand. And there are some demand questions given macro-economic uncertainty and depending on how consumers respond to what we believe will be higher -- potentially sharply higher -- beef prices.

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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