Livestock Analysis (VIP) -- January 7, 2013

January 7, 2013 08:30 AM


Price action: Lean hog futures saw a quiet, choppy day of trade. Futures ended mid-range with losses ranging from 2 1/2 to 30 cents in all but the front-month contract, which closed 7 1/2 cents higher.

Fundamental analysis: Traders took a step back to evaluate cash and futures market prospects going forward today. Today, some packers displayed some resistance to the trend for higher cash hog prices; cash hog bids were steady to lower today. Recent choppy action for the pork cutout market though movement has been consistently strong is also making investors more cautious.

Also, the lean hog market has recently benefited from strong gains in live cattle. That spillover support was lacking today.

Technical analysis: February lean hog futures settled near the midway point of last week's range, which marks near-term support and resistance at $84.90 and $87.35, respectively.

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 closed out a choppy day of trade with a mixed tone. The April and June contracts were mildly lower, while the February contract and far-deferred futures ended slightly higher.

Fundamental analysis: Cattle traders weren't willing to move the market too far in either direction today. Talk the market may be near a short-term top and given the big premium futures hold a big premium to the cash market limited buying interest. But selling interest was also limited by the bullish supply situation.

This week's cash cattle trade is very much uncertain to start the week. While feedlots secured $1 higher prices for cash cattle last week, not all of the showlist was cleaned up. That, along with packers' ability to pull from contract supplies, could limit demand for cash cattle this week. Packers will be especially reluctant to raise cash cattle bids if the boxed beef market weakens.

Technical analysis: The short-term boundaries for February live cattle futures are last week's low at $131.95 and the December high at $134.40. An upside breakout would have bulls targeting the contract high at $135.90, while a downside breakout would make the December low at $129.77 1/2 bears' target.


Feeder cattle

Price action: Feeder cattle settled mixed with a slight upside bias.

Fundamental analysis: Traders generally ignored modest strength in the corn market today as selling interest in live cattle was limited. Tight calf supplies are also supportive.

Technical analysis: March feeder cattle futures continue to hold in the short-term consolidation range from $153.65 to $157.07 1/2. The breakout from this range is likely to trigger the next trending move.

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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