Livestock Analysis (VIP) -- October 8, 2012

October 8, 2012 09:46 AM


Price action: Lean hog futures ended mixed with the October through February contracts up 15 to 32 1/2 cents and deferred months 40 to 55 cents lower. This was a low-range close.

Fundamental analysis: Lean hog futures benefited from mostly steady to higher cash hog bids today, which signals demand is keeping pace with seasonally expanding supplies. Slaughter rates are expected to remain around 1% above year-ago through the month of October, which will keep pressure on demand to chew through supplies.

Deferred contracts faced pressure from worries the global economic slowdown could diminish pork demand. Today, the World Bank cut its Chinese GDP forecast for both 2012 and 2013. This country has traditionally been a major buyer of U.S. pork.

Technical analysis: December lean hogs gapped higher on the open and traded above last week's high of $77.60 before closing the gap and settling in the lower half of today's range. Today's high of $77.65 is new resistance, while support is layered from the Sept. 25 high of $75.60 to the bottom of last week's gap at $75.32 1/2.

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: October through February live cattle contracts ended 2 1/2 to 30 cents higher, with the rest of the market narrowly mixed.

Fundamental analysis: Upside potential in the cattle pit was limited by negative outside markets, as strength in the U.S. dollar index triggered widespread selling in the commodity world. But signals market-ready supplies are tightening provided light support for nearby futures, especially since October live cattle are trading at a discount to last week's $124 cash cattle trade. Traders will be keeping a very close eye on the boxed beef market this week for cash clues.

Technical analysis: December live cattle ended mid-range. Near-term boundaries are resistance at last week's high of $126.90 and support at the September low of $123.95. Downside risk past initial support should be limited to the 2012 low of $122.40. A move above resistance would make bulls' next target the May high of $129.32 1/2.

Feeder cattle

Price action: Feeder cattle futures capped off a lackluster day of trade by ending steady to 32 1/2 cents higher.

Fundamental analysis: Upside potential in the feeder cattle pit was limited by negative outside markets, with support coming from weakness in the corn market and tight calf supplies.

Technical analysis: Initial support for November feeder cattle futures lies at last week's low of $143.80 and extends to the contract low of $139.75. Resistance stands at the September high of $149.52 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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