Livestock Analysis (VIP) -- December 4, 2012

December 4, 2012 09:00 AM


Price action: Lean hog futures closed 15 to 90 cents lower in all but the front-month December contract, which ended 52 1/2 cents higher.

Fundamental analysis: Ahead of next week's expiration, December lean hog futures are trading at around a $2 premium to the cash index. This opens fresh downside risk for the contract, as well as for February hogs which are trading at around a dollar premium to December hogs. However, this signals traders have a positive bias toward the cash market.

The cash hog market was steady to firmer again today, but packers have seen profit-taking slip into the red as gains in cash bids have outpaced those in the pork cutout market. As a result, packer demand for hogs could soften unless packers see margins improve.

Technical analysis: February lean hog futures posted a downside day of trade on the daily chart, but finished well off session lows. Important near-term boundaries are resistance at the July high of $86.20 and support at the April high of $84.50.

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 just off of session lows and 57 1/2 to 87 1/2 cents lower for the day in the December through August contracts. Farther deferred months were narrowly mixed.

Fundamental analysis: Early expectations for this week's cash cattle trade are for lower trade compared with last week's $125 to $126, which opened downside risk for nearby futures that are still at a slight premium to these contracts. Further, packers are thought to have contracted supplies priced against December futures that they can use to fill their near-term needs.

Boxed beef action thus far this week has generally been lackluster. Movement has slowed compared to recent weeks and though values firmed yesterday, they were mixed this morning. Uncertainty regarding the U.S. fiscal cliff outcome remains a damper on the livestock complex.

Technical analysis: February live cattle futures posted an inside day of trade and the contract's low-range close will have bears targeting yesterday's low of $129.97 1/2 in the next trading session. Resistance remains layered from the November high of $132.90 to the September high of $133.30.


Feeder cattle

Price action: Feeder cattle futures saw two-sided trade today and ended narrowly mixed. This represented a high range close for most contracts.

Fundamental analysis: Traders in the feeder cattle market weighed losses in the corn pit against spillover pressure from live cattle today. Outside markets also provided mixed signals today as risk appetite was low as illustrated by losses in crude oil futures, but a weaker U.S. dollar index was supportive of feeder cattle buys.

Technical analysis: January feeder cattle futures saw two-sided trade and ended near steady with today's open and yesterday's close. This leaves support at yesterday's low of $145.05, followed by the November low of $144.37 1/2. Resistance remains at the November double-top 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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