Livestock Analysis (VIP) -- September 12, 2012

September 12, 2012 09:48 AM



Price action: Lean hog futures rallied late to end 50 to 92 1/2 cents higher in the October through February contracts, which was near session highs. Farther deferred futures closed steady to 55 cents higher and solidly off session highs.

Fundamental analysis: Lean hog futures were supported today by short-covering after a strong performance in the pork product market Tuesday. But traders will want to see more proof of a short-term low in the product market before they actively cover short positions as there are still supply concerns for fall and the first half of winter.

Cash hog bids were steady to lower across the Midwest today despite Tuesday's strong performance in the pork product market as market-ready supplies are abundant.

USDA modestly lowered its production and export forecasts for both 2012 and 2013 in this morning's Supply & Demand Report. The price outlook for the third and fourth quarters was cut as supplies are expected to overwhelm demand.

Technical analysis: Bulls' first hurdle in October lean hog futures is last week's high at $75.20. a push above that level would make the Aug. 14 high at $77.70 the next target. Contract-low support is at $70.45.

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 opened under pressure, but they improved as the day progressed to end mostly 22 1/2 to 72 1/2 cents higher.

Fundamental analysis: The live cattle market was initially under pressure as mixed boxed beef prices Monday and Tuesday paired with negative packer margins gave traders reason to remove some of the premium futures hold to last week's $124 to $125 cash cattle trade. But improved boxed beef trade this morning gave the market a boost. Choice cuts rose 16 cents, Select cuts firmed 61 cents while movement improved to 149 loads. This plus tighter showlist estimates could give feedlots some leverage in cash trade negotiations again this week.

Technical analysis: October live cattle penetrated and closed above near-term resistance at the August high, which opens upside potential to the March 27 spike high of $129.95, closely followed by the psychological $130.00 mark.


Feeder cattle

Price action: Feeder cattle futures ended high-range with gains of 30 cents in the September contract, while other months were 90 cents to $1.02 1/2 higher.

Fundamental analysis: Bearish USDA reports for the corn market encouraged short-covering in feeder cattle futures today. However, the corn market has not yet rolled over and traders are not ruling out another rally in corn. Until there is proof a high is in place for corn, buying interest in feeder cattle will remain limited.

Technical analysis: October feeder cattle futures remain within their modest uptrending channel from the summer lows, with resistance layered from the top of the July 12 downside gap at $147.50 to last week's high of $147.80.

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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