Livestock Analysis (VIP) -- December 7, 2012

December 7, 2012 08:46 AM



Price action: Lean hog futures closed 50 cents to $1.15 lower in all but the May contract, which was steady today. For the week, hog futures posted sharp losses.

5-day outlook: December and February lean hog futures have moved to a discount to the cash index, reflecting traders' concern that the cash market will face near-term price pressure. In addition to thoughts the cash market has topped, bears have technical momentum. Unless the cash market shows unexpected strength next week, the upside is limited to corrective buying in lean hog futures.

30-day outlook: After cutting in the black for an extended period, packer margins have turned negative, which is largely the reason traders expect near-term pressure on the cash market. With holiday ham buying wrapped up, there are concerns the product market will soften though the end of the year.

90-day outlook: Market-ready hog supplies will begin to gradually decline in early 2013, but it will likely be at least the middle of the first quarter before there's much of a noticeable drop. But even a modest reduction in supplies will put less pressure on demand to keep pace.

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.




Price action: Live cattle futures ended the week in line with last week's close as traders anticipated near-steady cash cattle trade. Meanwhile, feeder futures benefited from late-week short-covering due to weakness in the corn market to produce gains for the week.

5-day outlook: At press time, cash cattle trade was beginning in Kansas at $1 lower than last week at $124. This week's showlist is up slightly from last week and boxed beef values have drifted lower to give feedlots less bargaining power. A similar scenario is likely for next week as the market has entered the "holiday doldrums," which is magnified by indications retailers have secured the bulk of their holiday meat needs.

30-day outlook: Downside risk in live cattle futures and the cash market should be limited to the mid-$120s this month due to tightening supplies. While boxed beef prices have softened from the highs, Choice values are still historically strong and should remain above $190-per-cwt. unless the U.S. economy moves into a recession.

90-day outlook: The cattle market will be as much of a weather market in 2013 as the grain markets will be. The reason being that if the Plains' drought continues to linger, it will push back the expansion phase of the cattle cycle. If cow slaughter sees another uptick, it would provide more meat for the market to digest, but also tighten supplies down the road.

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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