Livestock Analysis (VIP) -- December 5, 2012

December 5, 2012 08:32 AM



Price action: Lean hog futures ended mixed, with the December through April contracts up 12 1/2 to 55 cents. May and June futures were steady, with far-deferreds favoring a slightly weaker tone.

Fundamental analysis: Nearby futures were supported by the tightening supply situation and continued strong demand for cash supplies despite the fact packers are working in the red. Early expectations are for steady to firmer cash hog bids again tomorrow as packers are working to secure a large Saturday kill. Traders are also concerned that pork demand will soften after holiday buying has been completed, but pork remains competitively priced compared to beef.

The CME lean hog index is projected up 95 cents to stand at $82.47 tomorrow. December hogs are trading at around a $2.50 premium to the index and the contract expires next week.

Technical analysis: February lean hog futures saw an inside day of trade on the daily chart and finished in the upper half of the day's trading range. Support lies at yesterday's low of $81.50, with resistance at the November high of $88.25.

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 in the end finished steady to 40 cents higher.

Fundamental analysis: As the Dow Jones Industrial Average extended gains, buying in live cattle futures picked up. Concerns about going over the fiscal cliff were overshadowed by economic data and corporate news. Still, upside potential was limited as traders have a cautious attitude toward the cash market. December live cattle are trading in line with the bottom end of last week's $126 to $128 cash cattle range, suggesting traders look for steady trade this week. Packers' initial bids of $123 are being ignored by feedlots.

Technical analysis: February live cattle futures saw trade above resistance at yesterday's high and below support at yesterday's low. Futures ended within the boundaries of yesterday's trading range and finished mid-range.

Feeder cattle

Price action: Despite slight strength in the corn market, feeder futures ended 55 to 82 1/2 cents higher, which was near session highs.

Fundamental analysis: Feeder futures saw spillover support from live cattle, although buying was limited by concerns about high feed costs. January feeder futures are trading at a dollar premium to the cash index, which signals traders are concerned about the tightening calf supply situation.

Technical analysis: January feeder cattle futures gapped higher on the open, filled the gap, but then returned to the highs to end near opening levels. Near-term boundaries are support at the November low of $144.37 1/2 and resistance at the November high of $148.80.

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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