Livestock Analysis (VIP) -- October 26, 2012

October 26, 2012 09:31 AM


Price action: December lean hog futures finished 77 1/2 cents higher, while deferred contracts were mostly 5 to 35 cents higher. But lean hog futures posted losses for the week.

5-day outlook: The cash hog and pork product markets are signaling the contra-seasonal rally has run out of steam. Lean hog futures are also indicating a technical top is in place. That opens near-term downside risk. Pressure on December lean hog futures should be limited by the big discount that contract already hogs to the cash index.

30-day outlook: While holiday demand typically gives the product market a boost, any impact this year is likely to be limited as packers had record pork stocks in storage as of the end of September. Plus, market-ready hog supplies are heavy.

90-day outlook: Hog numbers will remain hefty through year-end. But once the near year rolls around, numbers will start to gradually decline. A sizable decline in hog numbers and pork production isn't expected until late winter/early spring.

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

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




Price action: Live cattle closed 25 to 47 1/2 cents lower today, while feeder cattle finished 67 1/2 to 90 cents lower. Both posted slight to moderate losses for the week.

5-day outlook: The fact live cattle futures weakened amid mostly steady cash cattle prices this week signals traders feel a short-term top in the cash and product markets is close. Those markets will be traders' primary focus next week. If short-term tops are confirmed, the market will face more pressure, although the discount futures hold to cash should limit selling interest.

30-day outlook: Record boxed beef prices will undoubtedly slow retailer buying. The key is how consumers respond to inevitable price increase. If consumer demand isn't reduced too much, the price downturn in boxed beef, cash cattle and live cattle futures will be limited.

90-day outlook: Tightening cattle supplies limit downside price risk, especially if there's no appreciable reduction in demand. Numbers will get even tighter next year.

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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