Livestock Analysis (VIP) -- July 30, 2012

July 30, 2012 09:50 AM


Price action: August lean hog futures finished 65 cents lower, while deferred months posted gains of 65 cents to $2.05.

Fundamental analysis: Strength in corn and soybean meal futures supported deferred lean hog futures today as traders feel surging feed prices will cause hog producers to cull their breeding herd and cut back on farrowings, thus leading to fewer supplies down the road. The expected pick up in movement of sows and gilts into the slaughter mix would increase the near-term supply of pork on the market and suppress cash hog bids, which weighed on August hogs.

Cash hog bids were mostly steady today, although some firmer bids were reported. Once packers have slaughter needs mostly secured for the week, cash hog bids are likely to soften as cutting margins remain in the red.

Technical analysis: October lean hog futures have moved into the upper half of the broad, short-term trading range from the recent contract low at $77.55 to the July 9 high at $84.15, but remain well within those boundaries.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Risk is covered in the cash market for now.



Live cattle

Price action: Live cattle futures got off to a choppy start, turned higher ahead of midday but trimmed gains into the close to finish mid-range with gains of 17 1/2 to 55 cents.

Fundamental analysis: Price action started choppy, but traders viewed early selling as a buying opportunity given Friday's strong close and overall commodity strength. Traders could have a more cautious approach tomorrow as August live cattle are trading at around a $5 premium to last week's cash market.

This week's showlist is higher in Nebraska, but smaller in Kansas and Texas compared to last week. Overall, market-ready numbers are up slightly compared to last week, but not by as much as anticipated after many producers held animals back last week. Key to improving on last week's $114 cash trade will be how the boxed beef market performs. Product prices were firmer on solid demand this morning.

Technical analysis: October live cattle penetrated and closed above resistance at the June high of $125.80. A close above the May high of $127.05 would make bulls' next target the May 27 high of $129.95.



Feeder cattle

Price action: Feeder cattle futures trimmed losses to finish 32 1/2 to 95 cents lower in all but the August contract, which ended 50 cents higher.

Fundamental analysis: Early pressure came on strength in the corn market, but losses were trimmed as the market works to consolidate prices above the mid-July low. While there are ongoing concerns with the corn crop, there are also some signs high prices are slowing demand.

Technical analysis: September feeder futures posted an inside day up on the daily chart. The high-range close gives bulls momentum heading into tomorrow session, but they have a lot of work ahead in order to turn technical momentum away from bears.

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: Risk is covered in the cash market for now.

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