Livestock Analysis (VIP) -- October 15, 2012

October 15, 2012 09:35 AM


Price action: December lean hog futures closed 17 1/2 cents higher, while deferred contracts ended 7 1/2 cents to $1.07 1/2 lower.

Fundamental analysis: December lean hog futures were supported by the $4-plus discount the contract holds to the cash market. Deferred contracts were pressured, however, by concerns the pork product market may be nearing a short-term top, which in turn would weigh on the rest of the market. Unless concerns about a short-term top are dispelled, it will be hard for hog futures to generate much near-term buying interest.

Cash hog bids were steady to firmer to open the week While market-ready hog supplies are plentiful, packers are working with strong cutting margins, giving them incentive to make sure kill lines remain as full as possible.

Technical analysis: Key support for December lean hog futures is the uptrend from the September low, which intersects around $76.23 Tuesday. If that trendline is violated, key support extends from the Oct. 5 low at $75.75 to the Sept. 28 low at $73.50. To the upside, tough resistance is layered from the July 31 high at $80.75 to the July high at $82.25.

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: Live cattle futures improved late in the session to finish steady to 52 1/2 cents higher. This was a high-range close for most contracts.

Fundamental analysis: Cattle futures got off to a choppy start today as traders are uncertain how long the boxed beef and cash markets can rise, but the market firmed as early cash cattle indications point to firmer trade this week. For one, Choice boxed beef cuts surged $2.22 and Select cuts rose $1.79 this morning. Plus, showlist estimates are down in Nebraska, Kansas and Texas compared to last week. Tightening supplies and strong demand, if continued, are a recipe for firmer cash trade.

Technical analysis: December live cattle futures matched Friday's high, marking the $125.50 area as solid initial resistance, followed by last Thursday's high of $127.32 1/2. Support is at the September low of $123.95.

Feeder cattle

Price action: Feeder cattle settled at or near session highs with gains of 80 cents to $1.32 1/2.

Fundamental analysis: Feeder cattle futures benefited from corrective short-covering amid ideas the downside was overdone last week, especially as the corn market has been unable to find sustained buying interest.

Technical analysis: November feeder cattle futures gapped higher on the open and traded in a very narrow range today. The next area of resistance for the contract is last week's high of $146.95, closely followed by the October high of $147.25. Strong, double-bottom support lies at $143.80.

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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