Livestock Analysis (VIP) -- October 16, 2012

October 16, 2012 09:55 AM


Price action: Lean hog futures ended in a narrowly mixed range today. This was a low-range close for most contracts.

Fundamental analysis: Lean hog traders exercised caution toward both sides of the market today. While the pork cutout market continues to strengthen, traders are beginning to question how long this will last with supplies of market-ready hogs quickly expanding and with the pork cutout value near levels where demand has slowed in the past. Plus, the market is aware that the market's recent fall rally is contrary to the seasonal trend.

Packers paid mostly steady prices for cash hogs today as profitable margins give them incentive to keep slaughter runs full. But if the pork market falters, margins would tighten and the cash market, too, will soften.

Technical analysis: December lean hog futures saw an inside day of trade, leaving near-term resistance at yesterday's high of $78.82 1/2. Uptrending support drawn off the lows since September intersects around $76.42 tomorrow. After this level, support is layered from the Oct. 5 low of $75.75 to the Sept. 28 low at $73.50.

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 were supported by improvement in the boxed beef market and ended 32 1/2 cents to $1.40 higher, with nearbys leading gains.

Fundamental analysis: The boxed beef market followed yesterday's strong start to the week with additional gains this morning. Choice beef values rose $1.01 this morning and Select rose $1.62 on strong movement of 104 loads. Choice values, nearing $195 per cwt., are at levels that have slowed demand dramatically in the past, but so far there is no sign of that. Combined with this week's cattle showlist that is tighter than last week, traders expect firmer cash cattle trade later this week.

Technical analysis: December live cattle futures gapped higher on the open, extended gains and finished mid-range for the day. Closes above resistance at last week's high of $127.32 1/2 would make bulls' next objective the August high of $129.30. Support begins at yesterday's low of $125.45 and extends to the September low of $123.95.

Feeder cattle

Price action: Feeder cattle futures extended gains as corn softened to end $1.60 to $2.35 higher for the day.

Fundamental analysis: October feeder cattle futures are now trading at around a $2 premium to the cash index, as traders expect further tightening of calf supplies. Traders look for Friday's Cattle on Feed Report to show Placements at 85% of year-ago levels.

Technical analysis: November feeder cattle gapped higher on the open and extended gains to post a high-range close. But to move out of the extended consolidation range, futures need closes above the September high of $149.52 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: Risk is covered in the cash market for now.


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