Livestock Analysis (VIP) -- January 10, 2013

January 10, 2013 09:00 AM


Price action: Lean hog futures favored the upside for most of today's session, but nearby contracts softened into the close. April and May futures closed with slight losses while other months ended with gains of 27 1/2 to 57 1/2 cents.

Fundamental analysis: For much of today's session lean hogs benefited from corrective short-covering thanks to major losses in the U.S. dollar index as well as ideas the downside was overdone yesterday. The selloff may be partially attributable to Russia's finding of ractopamine in U.S. pork. (See "Evening Report" for more.)

But some light profit-taking returned to nearby contracts ahead of the close as the cash hog market was mostly steady to lower today due to negative packer profit margins. Yesterday's decline in the pork cutout value also curbed buying enthusiasm.

Technical analysis: February lean hogs saw an inside day of trade. This means near-term support remains at yesterday's low of $84.15, while near-term resistance is still the Dec. 31 low of $84.90, closely followed by the psychological $85.00 mark.

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 steady to 27 1/2 cents lower through the October contract. Far deferred futures closed steady to 7 1/2 cents higher.

Fundamental analysis: Nearby futures softened into the close on news of additional cash cattle sales in Kansas at slightly lower prices compared to last week. But so far, cash cattle trade has been light and mostly in line with last week's $128 cash trade. Boxed beef prices were firmer this morning, but movement slowed to just 92 loads.

February live cattle ended the day at about a $3.50 premium to the cash market, which signals traders still have a positive bias toward cash given the overall tightness of supplies. But this also opens the door for additional pressure, especially if beef prices soften.

Technical analysis: April live cattle futures posted a downside day of trade on the daily chart and are working on sharp weekly losses. Bears' next target is the December low of $134.05. Initial resistance is at the November high of $136.60 and extends to the December high of $138.00.


Feeder cattle

Price action: Feeder cattle futures ended 65 to 87 1/2 cents lower, which was low-range for the day.

Fundamental analysis: Strength in the corn market weighed on feeder cattle futures today, with January feeders now trading within pennies of the CME feeder index. The index is trending upwards, which should help limit further pressure on futures.

Technical analysis: March feeder cattle futures gapped lower on the open and completed a 38% retracement of the rally from the November low to the December high, making the halfway point of the range around $152.00 bears' next target for support.

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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