Livestock Analysis (VIP) -- October 24, 2012

October 24, 2012 09:58 AM


Price action: Lean hog futures settled steady to 35 cents higher following a quiet and choppy day of trade.

Fundamental analysis: The profit-taking that weighed on lean hog futures the past two sessions dried up today, allowing the market to post modest gains. While traders are concerned the cash and product markets are putting in a short-term top after a strong, contra-seasonal rally, December futures are trading at a $6.78 discount to the cash index. That should continue to limit near-term selling interest unless futures violate key support and trigger technical selling.

Cash hog bids were steady at most locations today, although there were scattered mixed bids. Most plants have needs filled for this week, which will limit demand for cash hogs. But with cutting margins solidly in the black, packers aren't likely to aggressively lower cash bids.

Technical analysis: The uptrend from the September swing lows is key near-term support for December futures. That trendline intersects at $77.78 Thursday, which is just under Monday's low of $77.80. Violation of these support levels would signal a short-term top is 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 trimmed early gains and finished 5 to 22 1/2 cents higher.

Fundamental analysis: Futures were supported by ongoing strength in the boxed beef market, which has traders anticipating $1 to $2 higher cash cattle trade compared with last week's $127 trade. However, with packers' margins in the red, they are hesitant to increase bids, raising expectations for late-week cash trade. Choice beef values posted an all-time high of $199.40 per cwt. this morning. So far high prices have not curbed demand; 130 loads changed hands this morning.

Technical analysis: December live cattle gapped slightly higher on the open but filled the gap and posted a low-range close. Still, futures remain in the uptrending channel established from the September low. Resistance stands at last week's high of $128.32 1/2. Support is at yesterday's low of $126.50.


Feeder cattle

Price action: Feeder cattle futures ended steady to 42 1/2 cents higher in lackluster trade.

Fundamental analysis: Tightening supplies and a more positive outside market atmosphere provided light support to feeder cattle futures today. Nearby feeder futures are trading in line with the cash index, which limited buying interest in futures.

Technical analysis: November feeder futures posted an inside day of trade on the daily chart. The contract is near the middle of the two-month consolidation range. Support lies at the October low of $143.80 and resistance is 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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