Livestock Analysis (VIP) -- January 3, 2012

January 3, 2013 08:55 AM
 

Hogs

Price action: Lean hog futures moved off session highs into the close to finish 15 cents to $1.12 1/2 higher in all but the far-deferred contracts that ended slightly lower. Nearby futures posted a mid- to low-range close.

Fundamental analysis: Early support came on spillover from sharp gains in live cattle futures, but concerns about negative packer profit margins made traders more uneasy about the large premium nearby futures hold to the cash index. The cash hog market was mostly steady today, but the February hogs hold around a $4 premium to the cash market. To encourage stronger demand for cash hogs, pork cutout values must improve. Pork cutout values slipped $1 yesterday.

Technical analysis: February lean hog futures entered the Dec. 26-27 gap area but were unable to fill it. Futures slipped into the close to finish just above yesterday's high. Filling the gap at $87.40 would make bulls' next target the December high of $87.77 1/2 followed by contract-high resistance at $88.25. Support lies at this week's low of $84.90.

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 posted a high-range close to end 50 cents to $1.47 1/2 higher, with the front-month February contract leading gains.

Fundamental analysis: The tightening supply outlook for the year ahead provided support to futures, making traders comfortable with the sharp premium nearbys hold to the cash index. Packers' initial cash bids and feedlots' asking prices remain several dollars apart, with packers hesitant to raise bids due to negative profit margins. But strength in the boxed beef market has traders hopeful feedlots will eventually be the winners. General expectations are for $1 higher trade with last week's $127 trade.

Technical analysis: February live cattle futures are trading at around a $7 premium to last week's cash trade, which reflects increasingly bullish attitudes. The contract posted an upside day of trade on the daily chart and closed right on last week's high of $133.85. Bulls' next target is the December high of $134.40, with support at yesterday's low of $131.95.

 

 

Feeder cattle

Price action: Feeder cattle futures ended mid- to high-range with gains of 77 1/2 cents to $1.15.

Fundamental analysis: Feeder futures were supported by spillover from live cattle, tightening calf supplies and general weakness in the corn market. January feeder futures are trading at around a $5.50 premium to the cash index, which makes the contract vulnerable to profit-taking if live cattle futures face price pressure in the near-term.

Technical analysis: March feeder cattle futures posted an inside day of trade on the daily chart and ended mid-range. Near-term boundaries for the contract are resistance at the December high of $157.07 1/2 and support at yesterday's low of $153.65.

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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