Livestock Analysis (VIP) -- September 14, 2012

September 14, 2012 09:52 AM


Price action: Lean hog futures posted strong corrective gains for the week, but they still have a lot of work ahead in order to improve the technical situation. October lean hogs rallied $2.67 1/2 this week but the contract still remains within the boundaries of the downtrending channel.

5-day outlook: Futures stabilized this week on signs the cash hog market was working on a near-term low. Packers offered steady bids today thanks to profitable margins but still have little incentive to raise bids due to rising production. This week's projected pork production of 488.7 million lbs. is the largest since December 2007. The seasonal increase in pork production along with stepped up sow slaughter will limiting near-term upside potential to corrective rallies.

30-day outlook: Next week's Cold Storage Report is expected to show building supplies due to the recent increase in pork production. In order to keep the pipeline from backing up and encouraging packers to run as many hogs through kill lines as possible, pork prices must remain competitive to encourage stepped up domestic and export demand.

90-day outlook: The largest quarterly pork production of the year is projected in the fourth quarter, with supplies easing slightly in the first quarter of 2013. USDA sees cash hog prices in a range of $57 to $59 in the fourth quarter and improving in the first quarter of 2013 to $60 to $66.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Risk is covered in the cash market for now.




Price action: Cattle futures saw choppy trade today and settled in a similar fashion, but the market still finished with moderate gains for the week. Feeder cattle futures ended steady to lower, but they, too, edged out gains week-over-week.

5-day outlook: Traders will closely monitor boxed beef action next week, as recent mixed prices have hinted at some resistance to historically high beef prices. But movement has remained solid, signaling still healthy demand. With packers now cutting in the red, the boxed beef market must deliver a strong performance for them to raise cash bids again.

30-day outlook: Already tight supplies will tighten further in the months ahead in line with the seasonal trend. This will keep the cash and beef market trending higher through the fall. Any setbacks will be short-lived thanks to the tightening supply outlook.

90-day outlook: The cash cattle and beef market typically receive a boost in November/December thanks to retailer holiday buying and a plunge in production. This should keep cattle headed higher through year-end. USDA left its export forecast steady for 2012, but sharp losses in the U.S. dollar due to QE3, if maintained, could improve export prospects.

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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