Livestock Analysis (VIP) -- October 5, 2012

October 5, 2012 09:47 AM


Price action: Hog futures ended the day mixed, but for the week posted gains. Nearby lean hogs posted sharp weekly gains, with the October contract up more than $4 from last week's close.

5-day outlook: October lean hog futures are trading at around a $3 premium to the cash index, which signals traders expect more near-term cash strength. But with "just" seven trading days left until its expiration, further upside potential for October hogs will be dependent on how the cash market performs. Key to building on this week's strong cash performance will be if the pork market continues higher next week, as packers' profit margins are well in the black.

30-day outlook: Thanks to those profitable margins, packers are willing to move as many hogs as possible through plants. While there were mentions of tighter supplies providing support for the cash market this week, weekly slaughter and pork production were up from week-ago, and pork production in the last quarter of the year will be the largest of the year.

90-day outlook: Last week's Hogs & Pigs Report showed a steady hog herd with year-ago, although farrowing intentions were projected lower than year-ago. But given improvements in efficiencies via pigs-per-litter, it would take a two-percentage-point drop in farrowing intentions to lower All Hogs & Pigs.

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 futures ended mixed with the October through February contracts firmer and farther deferred months lower for the day. Most contracts ended with moderate gains for the week. Feeder cattle futures ended with slight gains for the day and the week.

5-day outlook: Cash cattle prospects are highly uncertain for next week. While mixed to softer boxed beef action at the end of the week signals some resistance to lofty prices, movement has remained strong. Also, slaughter slowed notably this week, which could signal packers are reducing kill hours to improve negative profit margins. Traders will watch the boxed beef market and showlist estimates for cash clues early next week.

30-day outlook: Relatively tight supplies should keep a solid floor of support under the boxed beef and cash cattle markets. The exception would be if global economic concerns again heighten, stirring concern about red meat demand.

90-day outlook: Tightening supply prospects will become a greater market factor next year and will limit downside risk for cattle futures. Traders expect the cattle market to hit a cycle high in 2013 -- likely around mid-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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