Livestock Analysis (VIP) -- October 9, 2012

October 9, 2012 09:44 AM


Price action: Lean hog futures ended 30 cents to $1.12 1/2 higher in all but the December contract, which ended 7 1/2 cents lower. Deferred-month futures led gains as traders count on tightening supplies by next spring.

Fundamental analysis: Upside potential for nearby lean hog futures was limited by ideas the cash market is working on a near-term high. The cash hog market was mostly steady today as packers protect their profit margins amid slowing pork demand.

October lean hog futures are trading at around a $1.50 premium to the cash hog index but will expire soon, leaving December hogs to track the trends of the cash market more closely. December hogs are trading at around a $3.60 discount to the cash index -- signaling traders expect softening in the cash market into the end of the year.

Technical analysis: December lean hogs posted an inside day of trade on the daily chart and remain within the boundaries of the uptrend established from the September low. Violation of uptrending support, which intersects near $75.15 tomorrow, would suggest a near-term high has been posted. Resistance stands at yesterday's high of $77.65.

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 live cattle ended $1.35 higher for the day. Deferred months closed steady to 47 1/2 cents higher, which was low-range.

Fundamental analysis: The front-month contract benefited early from signals for steady to firmer cash cattle trade compared with last week's $124. For one, packers are thought to be in need of supplies after 24 deliveries were reported against October futures. Also, the boxed beef market is on the rise again this week. This morning, Choice and Select cuts rose $1.14 and $1.51, respectively, and movement surged to 131 loads.

But buying interest in deferred contracts was limited by news the International Monetary Fund sees "alarmingly high" risk for serious global slowdown. This could trim beef demand.

Technical analysis: December live cattle gapped higher on the open, but filled the gap and settled low-range. Today's high of $127.17 1/2 is new resistance. The September low of $123.95 is strong support.

Feeder cattle

Price action: Feeder cattle futures settled in narrowly mixed, which was good for a mid- to high-range close.

Fundamental analysis: Feeder cattle futures enjoyed spillover support from the live cattle market early in the session, but as the dollar extended gains and corn enjoyed gains most of the day, traders began to take some profits out of the market.

Technical analysis: November soybean futures continue to chop between the September high of $149.52 1/2 and the October low of $143.80. The high-range close will give bulls the upper hand to start the next session.

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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