Livestock Analysis (VIP) -- November 7, 2012

November 7, 2012 08:49 AM
 

Hogs

Price action: Lean hog futures started with a mixed tone, but sharply extended gains in late-morning trade and ended $1.20 to $2.52 1/2 higher. Nearby futures led gains.

Fundamental analysis: Buying interest in the early going was limited by negative outside markets, as sharp weakness in the stock market raised concerns about meat demand. But traders then turned their focus to narrowing the discount December lean hog futures hold to the cash index. After today's trade, December hogs are now "just" $2.39 below the cash index. Given that market-ready supplies will remain abundant near-term, traders should consider this relatively "comfortable.".

Key tomorrow will be if futures build on today's gains or view the market's upside correction as overdone. Given the near-term outlook for the cash hog market, which is steady to lower, adding to today's gains would signal a potential change in attitude among traders.

Technical analysis: February lean hog futures tested resistance at the October high of $86.05. Above that resistance is at the July high of $86.20. Closes above the later level would have bulls targeting contract-high resistance at $86.70. Key near-term support lies at yesterday's low of $82.65.

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

Feed needs: 50% of remaining 4th-qtr. protein needs are covered in long Dec. meal futures at $487.10 and 25% of expected 1st-qtr. needs are covered in long March meal futures at $468.50. Carry all corn-for-feed risk in the cash market for now.

 

Live cattle

Price action: Live cattle futures closed 40 to 72 1/2 cents lower in all but some of the extreme far-deferred contracts, although that was well off session lows.

Fundamental analysis: Live cattle futures were heavily influenced by outside markets today. Sharp losses in the stock market along with gains in the U.S. dollar sparked active selling in live cattle. Throw in ongoing concerns with beef demand amid the recovery efforts on the East Coast and there wasn't a reason for traders to be buyers.

Cash cattle negotiations are just getting started, with feedlots passing on initial bids of $124 in the Southern Plains. Given price pressure on cattle futures, bigger showlist numbers and highly negative packer margins, all signs point to lower cash cattle prices compared with last week's $126 to $127 trade in the Plains.

Technical analysis: December live cattle futures posted a bearish reversal today. Key near-term support lies at the Oct. 29 low of $124.60, which was spiked today, but held a closing basis. A close below that level would open downside risk to the September low at $123.95. From there, support is layered to the April low at $122.40.

 

Feeder cattle

Price action: Feeder cattle futures closed 65 cents to $1.32 1/2 lower, which was actually mid- to upper range for the day.

Fundamental analysis: Feeder cattle futures got swept up by heavy spillover from live cattle and outside markets. Periods of price strength in the corn market also contributed to today's weakness, as did technical-based selling.

Technical analysis: January feeder cattle respected support at the very bottom of the extended, sideways range at $144.45 today. If that support is violated, the only remaining support on the daily chart is the contract low at $142.37 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: 50% of remaining 4th-qtr. protein needs are covered in long Dec. meal futures at $487.10 and 25% of expected 1st-qtr. needs are covered in long March meal futures at $468.50. Carry all corn-for-feed risk in the cash market for now.

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