Livestock Analysis (VIP) -- November 27, 2012

November 27, 2012 08:44 AM


Price action: Lean hog futures faced pressure most of the day and ultimately closed 10 to 65 cents lower. This was a high-range close for nearby contracts and a low-range close for deferred months.

Fundamental analysis: Pressure on nearby contracts came from the $4-plus premium the December contract holds to the cash hog index. Strength in the U.S. dollar index and a weak stock market also encouraged followthrough profit-taking after yesterday's disappointing close.

But selling interest was limited as the cash hog bids have been steady to firmer this week as packers are working to catch up on needs following the Thanksgiving holiday. Plus, improvement in the pork cutout market reminds traders retailers are beginning to stock coolers for the Christmas holiday. This morning, an impressive 65.5 loads of pork changed hands.

Technical analysis: December lean hog futures filled this morning's downside gap and settled high-range, which could give bulls the initial advantage tomorrow. Their initial target is Monday's high of $83.00. Today's low at $81.90 is initial support followed by the Nov. 13 high of $81.35 and the bottom of the Nov. 19 upside gap at $80.60.

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 closed narrowly mixed, which was in the middle to lower one-third of today's trading range.

Fundamental analysis: Live cattle futures were choppy today as traders weighed fundamentals against an uncertain macro-economic picture. While yesterday's steady $128 cash cattle trade in Texas gives traders some hope that will be the low-water mark for the week, there are enough uncertainties to keep them from actively buying futures.

On the cash front, all was quiet today after the initial sales in Texas yesterday. Lighter showlist numbers should give feedlots the upper hand and the boxed beef market strengthened this morning, but packers continue to work with highly negative cutting margins, which could keep them from raising cash hog bids. Unless cattle futures break sharply or the boxed beef market plunges, however, steady to firmer cash cattle prices compared with last week's $128 trade in the Plains are anticipated.

Technical analysis: December live cattle futures dipped below support at the October high of $128.32 1/2, but closed above that level. If the contract consolidates around the level, it would open the door for another push higher. If, however, this support is violated on a closing basis, it would signal a potential short-term technical top.


Feeder cattle

Price action: Feeder cattle futures closed 20 to 42 1/2 cents lower in all but some of the far-deferred contracts, which were slightly higher.

Fundamental analysis: Strength in the corn market weighed on feeder cattle futures today, especially given a lack of solid buying interest in live cattle. Tight feeder cattle supplies are limiting the downside, but high feed prices are capping buying interest in futures.

Technical analysis: January feeder cattle futures remain pinned within the four-plus month trading range. A breakout from that range is needed to kick off a new trending move.

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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