Livestock Analysis (VIP) -- November 28, 2012

November 28, 2012 09:03 AM


Price action: December lean hog futures closed $1.45 higher, while deferred contracts were 40 to 87 1/2 cents higher.

Fundamental analysis: Lean hog futures were supported by strength in the cash and product markets today. Despite its big premium to the cash hog index with just over two weeks until expiration, December lean hog futures led today's gains, which signals traders feel the cash market will build on the recent price strength. That is largely based on expectations the bulk of the seasonal build in market-ready hog numbers is worked through the market and also on strong packer margins.

December lean hog futures now hold more than a $4 premium to the cash index. But with packers working to fill up slaughter runs for this week before turning their attention to next week's needs and given strength in the pork product market, traders fully expect recent strength in the cash market to continue. Still, December lean hog futures are vulnerable to profit-taking.

Technical analysis: December lean hog futures took out the April high at $83.50, leaving the double-top contract high at $86.00 as bulls' last target on the daily chart. February lean hog futures are trading just below last week's contract high at $88.25.

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 finished just off session lows and 20 to 67 1/2 cents lower, following a mixed day of trade

Fundamental analysis: Bid and asking prices remain far apart after light trade on Monday in Texas at $128 -- steady with the week prior. The spread signals trade will likely take place late tomorrow or Friday. While showlist estimates are tighter this week, boxed beef performance has thus far been generally lackluster and packers continue to deal with negative cutting margins. This makes it difficult to guess the level at which cash trade will occur and thus encouraged traders to take profits late in today's session.

Technical analysis: December live cattle extended this week's corrective pullback. Followthrough selling and a break through support at the bottom of last Wednesday's upside gap at $127.12 1/2 would signal a near-term top is in place. Conversely, a return of buying interest would have bulls targeting Friday's high of $129.12 1/2.


Feeder cattle

Price action: Feeder cattle futures settled low-range with losses of 35 to 85 cents.

Fundamental analysis: After recent gains, feeder cattle traders shifted their attention to booking profits ahead of the calendar flip to December. Early strength in the U.S. dollar index was also encouraging of this. The fact that the corn market favored the upside much of today's session made it tough to spark buying interest in feeders today.

Technical analysis: January feeder cattle futures broke through and settled below near-term support at the bottom of last week's gap at $146.35. Next support is the double-bottom November low of $144.37 1/2. This week's double-top high of $147.90 is resistance.

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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