Livestock Analysis (VIP) -- December 6, 2012

December 6, 2012 09:05 AM


Price action: Lean hog futures gapped lower on the open and extended losses to finish mostly $1.15 to $1.55 lower.

Fundamental analysis: Much of today's pressure was tied to expectations the cash hog market has posted a near-term high given negative packer margins and indications retailers have holiday supplies secured. The cash hog market was mostly steady today, with some mixed undertones, but expectations are for steady to weaker bids tomorrow.

December lean hog futures are now trading at around at around a $1.50 discount to the cash index, and February hogs, which will soon be the lead-month contract, are trading within 50 cents of the index.

Technical analysis: February lean hog futures gapped below uptrending support drawn off September and November lows and extended losses. Followthrough pressure tomorrow would strongly suggest a market top is in place. Support lies at the November low of $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. After favoring a weaker tone this morning, futures firmed and ended 17 1/2 to 50 cents higher in all but the front-month December contract, which ended 7 1/2 cents lower.

Fundamental analysis: Futures were supported late in the day by short-covering, termed the "midweek bounce." But traders are still waiting on cash cattle trade to begin, which limited buying, especially given prospects for lower cash trade due to a larger showlist and weakness in the boxed beef market this week.

Packer bids and feedlot asking prices remain several dollars apart, which points to cash trade being delayed until possibly late Friday. Feedlots are hoping packers will raise bids to be more in line with last week's $125 to $126 trade.

Technical analysis: February live cattle futures managed to inch above yesterday's high to post an upside day of trade on the daily chart. Next resistance is the October high of $131.77 1/2, followed by the September high of $133.30. Support begins at yesterday's low of $129.97 1/2.


Feeder cattle

Price action: Feeder cattle futures strengthened into the close to finish 90 cents to $1.85 higher, with nearby contracts leading gains.

Fundamental analysis: Much of today's support was tied to weakness in the corn market, which encouraged traders to cover short positions. But nearby futures are vulnerable to selling as the January contract is trading at around a $2.50 premium to the cash index.

Technical analysis: January feeder cattle futures posted an upside day of trade on the daily chart and closed above the late-November high of $147.90. Futures need closes above the September high of $151.40 to move above the long-lasting consolidation range.

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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