Livestock Analysis (VIP) -- October 3, 2012

October 3, 2012 09:45 AM


Price action: October lean hog futures closed 87 1/2 cents higher, while deferred contracts were slightly to sharply lower.

Fundamental analysis: October lean hog futures continue to be supported by strength in the cash hog market despite the contracts' premium to the CME lean hog index. That suggests traders feel the recent cash strength will persist for at least through the end of next week, when the contract expires. Cash hog bids were steady to $1.50 higher today as packers are working to fill up slaughter runs amid favorable margins.

Deferred lean hog futures faced profit-taking pressure as soymeal and corn futures worked off their early lows. The quick response in hog futures to the intra-day rise in meal and corn signals traders are watching feed prices very closely for trading cues.

Technical analysis: December lean hog futures narrowly avoided a bearish reversal today. Tuesday's gap from $75.85 to $75.32 1/2 is key near-term support. Filling that gap would point to a test of the Sept. 28 low at $73.50 and could mark a short-term top.

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 softened into the close to end narrowly mixed and mid- to low-range for the day.

Fundamental analysis: Cattle futures benefited from light short-covering much of the day on signs the boxed beef market is working on a near-term low. Both Choice and Select boxed beef values firmed yesterday and this morning amid strong movement. This ups the chances for at least steady trade compared to last week's $122 to $123 trade, though negative packer profit margins and heavier showlist estimates this week add some uncertainty.

Technical analysis: December live cattle settled low-range, which should give market bears the upper hand tomorrow. Their initial target is the psychological $125.00 mark, followed by the September low of $123.95. Earlier in the day, the market briefly traded through resistance at the August low, making today's high of $126.90 initial resistance.

Feeder cattle

Price action: Feeder cattle futures settled mid- to high-range with gains of 25 to 47 1/2 cents in all but the October contract, which was 7 1/2 cents lower for the day.

Fundamental analysis: Early support for feeder cattle futures stemmed from weakness in the corn market. But corn futures firmed around midday, which encouraged light profit-taking in feeder cattle. Support also comes from tightening supply prospects for the year ahead.

October feeder futures faced light pressure as traders work to keep it in line with the cash index, which was most recently pegged down 8 cents to $143.14.

Technical analysis: Support for October feeder cattle futures lies at the bottom of yesterday's upside gap at $144.80, followed by Monday's low of $143.00. Resistance stands at the September high of $148.12 1/2.

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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