Livestock Analysis (VIP) -- October 18, 2012

October 18, 2012 09:56 AM
 

Hogs

Price action: Lean hog futures saw choppy trade most of the day and ended likewise. December futures closed down 32 1/2 cents, while most deferred contracts ended high-range with gains of 22 1/2 to 85 cents.

Fundamental analysis: December lean hogs faced light pressure as the cash hog market was steady to lower today. This fueled ideas the market may be working on a top as market-ready hog supplies are expanding.

But deferred months benefited from ideas profitable cutting margins for packers will prevent any sharp decline in the futures or cash markets. Strength in the pork market and mostly steady to lower cash hog bids have boosted packer profit margins. Traders will keep a close eye on the pork market, however, for any signs of weakness. Recently, prices have slid marginally but movement has remained strong.

Technical analysis: December lean hog futures matched yesterday's low of $78.60 today, marking it as near-term support. To the upside, resistance is layered from the psychological $80.00 level to the July 31 high of $80.75.

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: Live cattle futures gapped higher on the open and left the gap open despite a low-range close in nearby contracts. Futures finished 10 to 60 cents higher for the day.

Fundamental analysis: Live cattle futures benefited from ideas cash cattle trade will take place at higher prices this week. Showlists are down slightly and the boxed beef market has delivered an impressive performance so far this week.

Traders are also readying for USDA's Cattle on Feed Report tomorrow afternoon, which is expected to reflect tightening supplies. See "Evening Report" for pre-report expectations.

But the market retreated off its highs late in the session as the dollar rose against the euro as violent, anti-austerity protests again flared up in Greece.

Technical analysis: The low-range close in December live cattle will give bears the initial upper hand. They will work to close today's gap from $127.65 to $127.95. Earlier in the day, the contract broke the July 5 high, opening upside potential to the August high of $129.30.

Feeder cattle

Price action: Feeder cattle futures settled just 7 1/2 to 27 1/2 cents lower today.

Fundamental analysis: Feeder cattle futures faced light profit-taking today due to strength in the corn market and the U.S. dollar index. But selling interest was limited by ideas high feed costs are already factored into prices along with tightening supply prospects.

Technical analysis: November feeder cattle futures poked through the $149.50 area, which has stemmed rallies in September, but the contract was unable to close above it, marking it as key resistance. To the downside, the bottom of yesterday's gap at $147.75 is support.

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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