Livestock Analysis (VIP) -- November 21, 2012

02:33PM Nov 21, 2012
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Price action: December lean hog futures closed 10 cents higher, while deferred months finished 15 to 65 cents lower.

5-day outlook: Traders are expecting improved demand for cash hogs coming out of Thanksgiving as packers are thought to be short-bought on near-term needs. That could firm up cash hog bids, but with December lean hog futures trading at a $3.73 premium to the projected cash index for Friday, that may not translate into fresh buying interest. But if there is strength in the cash market it would limit selling interest in futures.

30-day outlook: Holiday ham buying should support the pork product market for the next several weeks. That may keep the pork product market supported enough for packers to maintain profitable cutting margins. If cutting margins stay profitable, packer demand should be strong enough to avoid sharp pressure on the cash hog market.

90-day outlook: Hog supplies will gradually begin to decline in the first quarter of next year. As a result, the price outlook will improve. But traders already have a premium built into deferred lean hog futures in anticipation of this.

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.




Price action: Live cattle futures settled near session highs with gains of 55 cents to $1.10. Nearby contracts were the upside leader. Feeder cattle futures ended 80 cents to $1.50 higher in thin, pre-holiday trade.

5-day outlook: Today's strong close signals the market fully expects cash cattle trade to take place above last week's $125 to $126 prices, though the standoff between packers and feedlots continues as of early this afternoon. This expectation can be attributed to ideas beef demand will improve as retailers begin stocking meat cases for the Christmas season.

30-day outlook: The boxed beef and cash cattle markets will remain supported by holiday-related demand through December. In addition, USDA's latest Cattle on Feed Report signals supplies will likely continue to tighten. This will keep the cash market supported. Whether lawmakers are able to avoid the fiscal cliff at year-end will also be key to consumer sentiment, and thus, beef demand.

90-day outlook: The cattle market is pointed toward a 10-year high in 2013, though most do not expect this to occur until the second half of the year when producers decide to start rebuilding the breeding herd, further tightening the beef supply. The caveat is that for this to occur, pasture conditions must significantly improve in the Plains.

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.