Livestock Analysis (VIP) -- December 31, 2012

December 31, 2012 07:13 AM


Price action: Lean hog futures settled 65 cents to $1.87 1/2 lower today, which was well off session lows and near session highs in some contracts.

Fundamental analysis: Lean hog futures faced heavy pressure in reaction to last Friday's Hogs & Pigs Report, which didn't show the contraction traders anticipated. Additional pressure came from unease with the fiscal cliff talks and the premium futures hold to the cash market.

The cash hog market was mostly steady today, although bids weren't solidly established. It's believed some plants are short-bought on supplies for the remainder of the week, which could support cash hog bids after the holiday. But with cutting margins solidly in the red, it's unlikely they will aggressively pursue hogs even if they are short-bought.

Technical analysis: February lean hog futures left a downside gap from $85.80 to $86.30 on the daily chart today, which is initial resistance, followed by last week's high at $87.77 1/2 and the contract high at $88.25. Today's low at $84.90 is initial support, followed by the December low at $83.20 and the November low at $82.65.

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 saw a choppy day of trade, with December expiring 50 cents higher at $129.90. February through October futures ended 47 1/2 cents to $1.27 1/2 lower, with far-deferred contracts steady to firmer.

Fundamental analysis: Periods of price support came from expectations tightening supplies in 2013 will lift the cash market, giving traders the encouragement to keep nearby futures at a premium to the cash market. However, February cattle now have the responsibility of following cash trade more closely and ended the day at around a $6 premium to last week's cash trade.

Traders will be keeping an eye on the boxed beef market for cash indications later in the week. This week's showlist is tighter in Nebraska and Kansas compared to last week, but up in Texas. The boxed beef market started the week on solid footing, with Choice values up 70 cents and Select up 95 cents on solid movement of 105 loads this morning.

Technical analysis: February live cattle futures posted a bearish reversal on the daily chart, but held above support at last week's low of $132.85 to remain within the recent consolidation range. Resistance stands at the December high of $134.40.


Feeder cattle

Price action: Feeder cattle futures favored a firmer tone for much of the day, but softened into the close to end 17 1/2 to 80 cents lower.

Fundamental analysis: Buying interest was limited by concerns the U.S. economy is headed over the fiscal cliff, with selling limited by tight calf supplies. January feeder cattle futures are trading at around a $4.50 premium to the cash index, which also limited buying interest today.

Technical analysis: January feeder cattle futures gapped slightly higher on the open, filled the gap, but closed near their opening level. Support lies at last week's low of $150.85 and resistance stands at the December high of $154.60.

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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