Livestock Analysis (VIP) -- November 19, 2012

November 19, 2012 09:18 AM


Price action: Lean hog futures were higher throughout the day on help from positive outside markets. December and February hogs closed $1.12 1/2 to 97 1/2 cents higher, respectively, with the rest of the market up 35 to 72 1/2 cents.

Fundamental analysis: Triple-digit gains in the Dow Jones Industrial Average and weakness in the U.S. dollar index gave traders more confidence to extend long positions. December hog futures are now trading at around a $2.30 premium to the cash index, which signals traders are more friendly toward near-term cash prospects.

Meanwhile, the cash hog market was steady to $1 lower as packers work to improve profit margins and are preparing for a holiday shortened kill schedule. Given the fact there are plenty of supplies to draw from, look for the cash hog market to be steady to weaker this week.

Technical analysis: Near-term boundaries for December lean hog futures are resistance at today's high of $81.90 and support at the Nov. 1 high of $79.40. Violation of support would have bears targeting the November low of $76.65, while a move through resistance would make bulls' next target the July high of $82.25.

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 gapped higher on the open, but intra-day action closed that gap and futures settled low-range with all but the April contract 10 to 45 cents higher. April live cattle settled 5 cents lower for the day.

Fundamental analysis: Live cattle futures received an early boost thanks to Friday's Cattle on Feed Report, which, as expected, pointed to tightening supplies in 2013. Also, cash cattle trade took place late on Friday at mostly $125 to $126, which was steady to firmer compared to the week prior. Outside markets were also supportive today thanks to ideas lawmakers will deal with the fiscal cliff and better-than-expected housing data.

Showlist estimates are down slightly from last week, but it's uncertain when, and how aggressively, packers will buy cattle given the Thanksgiving holiday.

Technical analysis: February live cattle posted a new monthly high of $130.75 today, but the contract settled well off this level, leaving it as near-term resistance. Support lies at the November low of $128.15.


Feeder cattle

Price action: Feeder cattle futures enjoyed an upside day of trade and settled mid-range and steady to 40 cents higher for the day.

Fundamental analysis: Feeder cattle futures enjoyed corrective short-covering on broad improvement in investor risk appetite today, along with expectations supplies will continue to tighten in 2013. Strength in the corn market kept bullish enthusiasm in check, however.

Technical analysis: January feeder cattle futures traded through $146.45 today, closing the Nov. 7 gap, but the market settled off this level, leaving it as near-term resistance. Double-bottom support stands at $144.37 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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