Livestock Analysis (VIP) -- January 2, 2013

January 2, 2013 08:51 AM


Price action: Lean hog futures settled at or near session highs with gains of 12 1/2 cents to $1.57 1/2 through the December contract.

Fundamental analysis: Nearby lean hogs faced pressure for much of the day, but these contracts firmed late in the session to join deferred months in posting a high-range close. Last Friday's Quarterly Hogs & Pigs Report again weighed on nearby contracts in early trade as it showed supplies are not shrinking in reaction to high feed costs as many had anticipated.

A stronger-than-anticipated cash hog market today as packers found themselves short-bought on near-term needs following the holidays helped lean hogs to finish with gains. But as packers are cutting in the red again, the pork market must continue to improve to keep the cash market, and thus futures, supported.

Technical analysis: February lean hog futures traded up to resistance at the bottom of Monday's downside gap at $86.30, and settled just off this level. The market needs closes above this price to spark bullish enthusiasm. Monday's low of $84.90 is support.

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 settled mixed, 27 1/2 cents lower to 65 cents higher, following a choppy day of price action.

Fundamental analysis: Live cattle futures were quiet to start the new year. While the stock market posted strong gains in reaction to the U.S. averting the fiscal cliff, cattle traders were hesitant buyers given the big premium futures hold to last week's cash cattle trade.

Initial signs point toward steady to firmer prices compared with last week's $127 trade in the Plains, but there's some uncertainty as packer margins are deep in the red. Given Tuesday's holiday, active cash cattle trade is not expected until Friday.

Technical analysis: February live cattle futures dipped below initial support at Monday's low, but closed above that level. While there are indications a short-term technical top is in place, downside risk is limited to the fall lows by tightening supplies.


Feeder cattle

Price action: Feeder cattle futures closed 10 to 37 1/2 cents lower through the April contract, while farther deferred contracts were slightly higher.

Fundamental analysis: A lack of buying interest in live cattle kept feeder cattle futures under wraps today despite pressure on corn futures. The premium futures hold to the cash index was also a limiting factor today.

Technical analysis: March feeder cattle futures are consolidating around old resistance at the $154.00 level. That's bullish if the contract can maintain that level as support. But consecutive lower closes below that level would signal the breakout attempt failed.

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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