Livestock Analysis (VIP) -- October 22, 2012

October 22, 2012 09:35 AM


Price action: December through April lean hog futures closed lower, while the May contract finished steady and far-deferred months were slightly higher.

Fundamental analysis: Nearby lean hog futures faced profit-taking pressure today as traders sense the contra-seasonal rally in futures and the cash market may be nearing an end soon. Given the nearly $5.50 discount the December contract holds to the cash index, however, selling interest is likely to be corrective in nature until there is a confirmed cash top. Far-deferred lean hog futures were mildly supported by strength in corn and soymeal futures as traders expect high feed prices to limit hog production down the road.

Cash hog bids were steady at most locations today, although there were some weaker undertones. While packer cutting margins remain strong, market-ready hog supplies are plentiful, limiting demand for cash hogs.

Technical analysis: Key support for December lean hog futures is the uptrend drawn off the September swing lows. That trendline intersects at $77.32 Tuesday. To the upside, Friday's high at $79.77 12 is followed by the July 31 high at $80.75 and the summer peak 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 settled steady to 40 cents higher for the day, which was a mid- to low-range close.

Fundamental analysis: Bulls had the slight advantage today thanks to Friday's Cattle on Feed Report that showed all categories below year-ago levels, with Placements and Marketings even smaller than expected. This encouraged traders to buy deferred months more aggressively than nearby contracts. Adding to the positive tone were gains in boxed beef prices this morning and decent movement. Showlist estimates are near steady with week-ago. So if the boxed beef market continues to show strength, higher cash trade may be seen again this week.

But buying interest was limited ahead of this afternoon's Cold Storage Report, which showed frozen beef stocks just above expectations at 425.621 million lbs. for the end of September.

Technical analysis: December live cattle saw an inside day of trade. Last week's low of $125.45 is near-term support with last week's high of $128.32 1/2 serving as initial resistance.


Feeder cattle

Price action: Feeder cattle futures posted a choppy day of trade, but the market softened into the close. Futures settled low-range with losses of 32 1/2 to 95 cents.

Fundamental analysis: While tightening supply prospects encouraged light short-covering at times today, concerns with relatively high corn prices ultimately won out. Choppy action in the corn market today after gains to wrap up last week signal a near-term low may be in place. Negative outside markets added light pressure.

Technical analysis: November feeder cattle futures closed last Wednesday's upside gap, layering support at the bottom of Tuesday and Monday's upside gaps at $145.57 1/2 and $145.00, respectively. Resistance remains at last week's high of $149.60.

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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