Livestock Analysis (VIP) -- October 19, 2012

October 19, 2012 09:34 AM
 

Hogs

Price action: Lean hog futures saw a choppy day of trade and ended likewise. Nevertheless, the market saw strong gains for the week.

5-day outlook: Lean hog futures will continue to rise contra-seasonally until the pork market falters, barring a bearish surprise in Monday's Cold Storage Report. Overall strength in the pork complex has kept packer profit margins in the black and encouraged them to keep slaughter at levels that match expanding supplies.

30-day outlook: But eventually the market will likely see a downside correction as pork production will rise into year-end as cooler temps encourage more weight gain and pork demand is typically lackluster before retailers begin stocking their meat cases for Christmas.

90-day outlook: The start of the new year marks the passage of the heaviest hog production season. Plus holiday retailer buying will likely tighten pork stocks, which should lead to gains in the cash hog and futures market in January. The market will also have the Dec. 28 Quarterly Hogs & Pigs Report with which they can see if high feed costs have caused producers to alter their production intentions.

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

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

 

 

Cattle

Price action: Profit-taking hit live and feeder cattle futures today, but futures still posted gains for the week. Traders' focus today was on evening positions ahead of this afternoon's Cattle on Feed (COF) Report.

5-day outlook: The COF Report is getting a bullish read, as all categories came in tighter than traders expected. The Placements figure at 81% of year-ago levels points to a dramatic tightening of supplies through next year. Futures should find support from the report next week, but focus will quickly shift to the cash market.

30-day outlook: Cash cattle trade came in mostly $2 higher this week at $127 as packers were forced to raise bids due to tightening supplies. But with their profit margins in the red, packers will continue to be hesitant buyers. Choice boxed beef values are nearing levels that have choked off demand in the past, but consumers are showing acceptance of higher prices for the time being. Once that changes, beef prices and futures will retreat.

90-day outlook: 2013 live cattle contracts are counting on cash cattle trade holding around $130 to $134 next year, which seems like a very likely scenario given the tightening supply situation. The 10-year high is due in 2013.

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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