Livestock Analysis (VIP) -- December 3, 2012

December 3, 2012 09:08 AM


Price action: Nearby lean hog futures enjoyed gains early in today's session, but the market reversed course after midday and settled just off session lows with losses of 15 cents to $1.25.

Fundamental analysis: Early gains in the lean hog market stemmed from ongoing strength in the cash hog market, thanks to strong packer profit margins and a holiday-related boost in pork demand. But as outside markets took a more mixed tone and risk appetite faded, profit taking in the lean hog market picked up. The $3.61 1/2 discount December futures hold to the cash hog index was also encouraging of profit-taking.

Technical analysis: December lean hogs traded up to resistance at the top of the March 6 downside gap at $85.05 before reversing course and settling near session lows. This signals that level is tough resistance. Support stands at the psychological $83.00 level that coincides with the bottom of last week's upside gap

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 were choppy today, but ended 10 to 62 1/2 cents higher through the October 2013 contract on help from positive outside markets.

Fundamental analysis: Early weakness was tied to disappointment over last week's lower cash cattle trade, as it raises concerns about packer demand. But futures quickly turned around on help from positive outside markets, as well as the solid start to the boxed beef market for the week. Choice values rose 22 cents and Select was up 65 cents on solid movement of 100 loads this morning.

Given the fact packers are working with negative profit margins, how the beef market performs this week will be critical in determining if the cash market can strengthen. With December live cattle trading at around a dollar premium to the top end of last week's cash trade, it will be difficult for futures to extend today's gains unless cash opinions strengthen.

Technical analysis: February live cattle futures saw trade below last week's low and briefly traded below $130.00 before short-covering lifted futures. Resistance begins at the October high of $131.77 1/2 and extends to the November high of $132.90. Support begins at today's low of $129.97 1/2 and extends to the November low of $128.15.



Feeder cattle

Price action: Feeder cattle futures ended mixed, with February through April contracts 2 1/2 to 20 cents lower and deferreds 5 to 60 cents higher.

Fundamental analysis: Pressure on feeder cattle was limited by slight strength in live cattle futures, but concerns about tight feed supplies limited buying. January feeder futures are trading at around a dollar discount to the cash index, which helped limit pressure on nearby feeder cattle futures.

Technical analysis: January feeder cattle gapped lower on the open but filled the gap and posted a high-range close. Near-term boundaries are support at the November low of $144.37 1/2 and the Nov. 23 high of $147.90.

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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