Livestock Analysis (VIP) -- January 9, 2013

January 9, 2013 08:59 AM


Price action: Lean hog futures posted sharp losses of $1.22 1/2 to $2.70 and finished on or near session lows.

Fundamental analysis: The bulk of today's price pressure was tied to weakness in the cash hog market. With futures trading at a premium to the CME lean hog index, steady to lower cash prices triggered active selling. After that, sell stops were triggered as futures dropped through chart support.

Cash hog bids were steady to $1 lower across the Midwest, with the weaker bids generally in eastern locations. With packer cutting margins in the red, additional near-term pressure on the cash hog market is expected.

Technical analysis: February lean hog futures violated support at the Dec. 31 low. The technical damage for April lean hog futures was more pronounced as the contract plunged through the 100-day Moving Average, the December low and the November low, suggesting a potential major top is in place.

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 were pressured throughout the day and weakened into the close to finish 50 cents to $1 lower in the 2013 contracts. Far-deferred contracts posted lighter losses.

Fundamental analysis: Concerns about sluggish meat demand provided widespread pressure in the livestock complex today, as traders even noted concerns about strength in the dollar index trimming exports. Boxed beef prices have reached prices have have altered buying patterns in the past, so traders are keeping a keen eye on product market prices.

Traders also worked to narrow the premium nearby contracts hold to the cash market. Additional light cash cattle trade was reported in Nebraska today after limited trade in Texas yesterday at steady $128 prices compared with last week. Remaining feedlots say they will wait for packers to raise bids further, but this week's larger showlist gives packers the upper hand in cash negotiations.

Technical analysis: February live cattle futures hit sell stops as prices slipped below last week's low of $131.95. Today's low-range close gives bears momentum heading into tomorrow's open. Next support is the December low of $129.77 1/2, with resistance at the December high of $134.40.


Feeder cattle

Price action: A combination of spillover from live cattle and strength in the corn market kept feeder cattle under pressure throughout the day. Futures ended 65 cents to $1.22 1/2 lower, with nearby contracts leading losses.

Fundamental analysis: Traders worked to trim the premium nearby futures hold to the cash index, with the January contract now within a dollar of the index. Tight supplies of calves will limit near-term pressure on feeder futures, but traders are concerned about still-high feed costs.

Technical analysis: March feeder cattle futures gapped lower on the open, failed to fill the gap and ended back near opening levels to post a low-range close. The contract is hovering just above support at last week'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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