Livestock Analysis (VIP) -- October 10, 2012

October 10, 2012 10:00 AM
 

Hogs

Price action: Lean hog futures extended gains into the close and finished 30 cents to $1.30 higher amid signs of strong pork demand.

Fundamental analysis: Sharp gains in the pork cutout market yesterday afternoon on strong movement led to speculation export demand had strengthened, which in turn supported futures today. Meanwhile, the cash hog market was mostly steady today, with some firmer undertones due to profitable packer profit margins. But the seasonal increase in supplies has most packers protecting margins and offering steady bids.

The CME lean hog index is projected up 73 cents to stand at $81.78 tomorrow. October hogs are trading at less than a dollar premium to the index. But December hogs, which will soon be the lead-month contract, are trading at around a $3.50 discount to the index. That added to bullish momentum today.

Technical analysis: December lean hog futures moved to their highest level since late July to post a 50% retracement of the decline from the February high to the September low. Next key resistance is at the 62% retracement just below the $80.00 level. Support lies at last week's low of $75.75.

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

Feed needs: Risk is covered in the cash market for now.

 

 

Live cattle

Price action: October live cattle futures closed 22 1/2 cents higher, while most deferred contracts ended slightly lower.

Fundamental analysis: Expectations for steady to firmer cash cattle prices compared with last week's $124 trade in the Plains mildly supported October live cattle futures today. Initial packer bids were established at $122, but at this stage feedlots are seeking $126 to $127 for this week's supplies. Most cash sources feel cash trade will come in around $125 to $126 barring a collapse in cattle futures.

Deferred live cattle futures faced light selling pressure today following a disappointing close Tuesday. Macro-economic concerns are also keeping traders cautious about pumping money into the long side of the market, but with supplies expected to tighten, the downside is limited to mild corrective selling.

Technical analysis: December live cattle futures are consolidating around the psychological $126.50 level in an apparent pause before the next price move. If it's to the upside, bulls' initial target is yesterday's high of $127.17 1/2 followed by the August high of $129.30. To the downside, the September low at $123.95 is near-term support.
 

Feeder cattle

Price action: Feeder cattle futures closed narrowly mixed following a quiet day of trade.

Fundamental analysis: While the corn market was under pressure today, feeder cattle traders were unwilling to push futures higher ahead of tomorrow's USDA reports for fear of a bullish surprise for corn. Combined with a lack of price movement in the live cattle market, that kept feeder cattle futures choppy today.

Technical analysis: After a strong recovery from the summer lows stalled, feeder cattle futures have settled into an extended, sideways range. The boundaries of that range for January feeder cattle lie at $146.05 to the downside and $151.40 to the upside.

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: Risk is covered in the cash market for now.
 

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