Livestock Analysis (VIP) -- October 23, 2012

October 23, 2012 10:06 AM


Price action: Most lean hog contracts gapped lower on the open and faced pressure throughout the day. Futures settled with losses ranging from 20 to 55 cents.

Fundamental analysis: Broad risk aversion and a disappointing Cold Storage Report for the month of September encouraged profit taking in lean hog futures today. In addition, the pork cutout value slid and movement failed to impress yesterday, adding to ideas the market is working on a short-term top.

However, losses were limited by mostly steady cash hog bids today as packers worked to secure late-week slaughter needs. Wide profit margins continue to give them incentive to keep as many hogs running through kill lines as possible.

Technical analysis: December lean hogs respected uptrending support drawn off the lows since September that intersects around $77.58 tomorrow. Followthrough selling and a close below that level would signal a near-term top is likely in place.

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 ended 15 to 52 1/2 cents lower through the August contract, while far-deferred contracts closed steady to firmer.

Fundamental analysis: Futures were largely pressured by negative outside markets amid a "risk-off" atmosphere. The selloff on Wall Street gained momentum today as the Dow Jones Industrial Average sank more than 200 points on disappointing earnings and concerns about the global economy.

Pressure on live cattle futures was limited and futures came off session lows due to ongoing strength in the boxed beef market. Choice boxed beef values were up 62 cents this morning and Select rose $1.62. Choice beef values are within a dollar of the $200-per-cwt. level that traders associate with limiting demand in the past.

So far, no cash cattle bids have been established, which points to late-week trade.

Technical analysis: December live cattle gapped slightly lower on the open and extended losses, with futures bouncing off the $126.50 level today before ending mid-range. Today's low is near-term support, with resistance at last week's high of $128.32 1/2.


Feeder cattle

Price action: Feeder cattle futures saw light selling throughout the day and ended 25 to 70 cents lower.

Fundamental analysis: Futures saw spillover from live cattle as well as negative outside markets. With October feeder cattle futures trading in line with the cash index, traders saw no urgency to extend long positions. But tightening calf supplies helped to limit pressure on futures.

Technical analysis: November feeder cattle gapped slightly lower on the open and saw little other price movement for the day. Near-term boundaries are support at the October low of $143.80 and resistance at the October 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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