Livestock Analysis (VIP) -- January 8, 2013

January 8, 2013 08:27 AM


Price action: Lean hog futures saw a choppy day of trade and ended narrowly mixed.

Fundamental analysis: Upside potential throughout the day was limited by weakness in live cattle futures, as well as concerns about packers' profit margins. The cash hog market was mostly steady today, but some firmer tones were noted as some packers are still in need of supplies this week. However, with packers' margins in the red, traders will be keeping a close eye on the pork cutout market.

The CME lean hog index is projected up 33 cents to stand at $83.86. February hogs are trading at around a $2.50 premium to the index, which suggests traders still have a positive bias toward the cash market near-term.

Technical analysis: Near-term boundaries for February lean hog futures are resistance at the late December high of $87.77 1/2 and support at the late December low of $83.90. Uptrending support drawn off September and December lows intersects near $85.25 tomorrow.

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 mid- to low-range close and finished 2 1/2 to 60 cents lower.

Fundamental analysis: Live cattle futures saw some profit-taking, with additional pressure coming from news of light cash cattle trade in Texas at $128, which is steady with last week. At least one feedlot wanted to clean up showlists after it carried supplies over last week. Today's cash trade doesn't necessarily set the tone for the remainder of the week, but cash sources look for more feedlots to move cattle at prices steady with last week. This weighed on nearby live cattle as the February contract is trading at around a $5.50 premium to the cash market.

Technical analysis: February live cattle briefly penetrated support at yesterday's low of $132.52 1/2, but closed just above that level. Followthrough pressure tomorrow from today's low-range close would have bears targeting the October high of $131.77 1/2. Meanwhile, resistance stands at the December high of $134.40.


Feeder cattle

Price action: Feeder cattle futures ended 52 1/2 cents to $1.67 1/2 lower, which was low-range for the day.

Fundamental analysis: Slight strength in the corn pit triggered profit-taking pressure in feeder cattle futures today, with additional pressure coming on spillover from live cattle. Futures also worked to trim the premium January futures hold to the cash index, which stands at $150.32.

Technical analysis: March feeder cattle futures posted a downside day of trade on the daily chart and filled the Jan. 3-4 gap area at $155.20. Support now lies at last week's low of $153.65 and initial resistance is at the December high of $157.07 1/2.

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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