Livestock Analysis (VIP) -- October 1, 2012

October 1, 2012 09:37 AM


Price action: Lean hog futures strengthened as the day progressed to finish high-range. The October contract ended 40 cents higher for the day, while the rest of the market ended $1.10 to $1.77 1/2 higher.

Fundamental analysis: Friday's Quarterly Hogs & Pigs Report pointed to tightening supplies in 2013. This added to bullish enthusiasm and gave deferred contracts a boost. The cash hog market has risen consistently over the past several weeks as has the pork market as wide packer profit margins have helped the market keep pace with seasonally expanding supplies.

But the cash hog market was mostly steady today and early expectations are for more of the same tomorrow as packers aren't having any difficulty securing needed supplies.

Outside markets were also supportive of livestock buying today as the U.S. dollar index was under pressure while the stock market and the commodity index enjoyed strong gains.

Technical analysis: Followthrough buying in December lean hog futures tomorrow would have the contract testing near-term resistance at last week's high of $75.65, after which resistance stands at the May low of $76.40. Support lies at last Friday's low of $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 posted a strong late-session rally to finish 50 cents to $1.42 1/2 higher.

Fundamental analysis: Live cattle saw a choppy start, but enjoyed late-session buying on spillover from strength in the hog market and help from positive outside markets. Traders are also cautiously optimistic about the solid start to the week in the boxed beef market this morning. Choice beef values were steady this morning and Select rose 12 cents on strong morning movement of 124 loads.

This week's cattle showlist is up slightly from last week, meaning the boxed beef market needs to improve for packers to raise cash bids from last week's $123 cash trade as cutting margins are deep in the red. Initial bids are $2 lower, but asking prices are steady to $1 higher.

Technical analysis: December live cattle posted an upside day of trade on the daily chart. Followthrough buying tomorrow would signal a near-term low has been posted, but to confirm a low, the contract needs to return above the August low of $126.72 1/2.


Feeder cattle

Price action: Feeder cattle futures started slightly lower, but closed 75 cents to $1.55 higher on spillover from live cattle, positive outside markets and a choppy tone in the corn market.

Fundamental analysis: Early weakness was tied to strength in the corn market, but as corn turned choppy, buying picked up in the feeder cattle pit. October feeder cattle are trading at around a $1.50 premium to the cash index, which could limit followthrough buying tomorrow.

Technical analysis: November feeder cattle futures violated support at Friday's low and moved above Friday's high, but narrowly missed posting a bullish reversal. Filling last week's gap area at $146.32 1/2 would increase talk of a near-term low being in place.

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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