Livestock Analysis (VIP) -- September 19, 2012

September 19, 2012 09:51 AM


Price action: Lean hogs futures favored a firmer tone throughout the day amid short-covering and ended 45 to 90 cents higher, which was near session highs.

Fundamental analysis: Futures extended the rally from their contract lows as traders say there is mounting evidence the worst is behind in terms of heavy pork production. The cash hog market was mostly $1 higher today as packers were willing to dip into profitable margins to secure needed supplies. Packers are planning another large Saturday kill, but don't have those hogs fully booked.

Pork cutout values were down sharply yesterday, which limited early strength in lean hog futures. If pork values continue to soften it will suggest supplies are still burdensome, so all eyes will be on the pork market to gauge how the pork pipeline is running.

Technical analysis: December lean hogs futures posted another upside day of trade on the daily chart, with next resistance at the mid-August high of $75.15, which closely coincides with a 38% retracement of the decline from the July high. Therefore, closes above this level would strongly suggest the market has posted a near-term low.

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: Cattle futures were choppy to lower for much of the session, but firmed into the close to finish slightly higher in all but the front-month October contract.

Fundamental analysis: Uncertainty over this week's cash cattle trade triggered the cautious tone in live cattle futures today. While traders sense a short-term top in the cash market may be near, boxed beef prices continue to charge higher and showlist supplies are tighter than week-ago. Unless cash cattle trade unexpectedly gets underway soon than expected, another day of light and choppy price action is likely in live cattle futures Thursday.

Technical analysis: Last week's high at $128.55 is key near-term resistance for October live cattle futures. That level must be cleared to signal a breakout from the extended, choppy range. To the downside, Monday's low at $125.50 is initial support, followed by the August low at $123.40. A close below the latter level would signal a likely drop to the bottom of the extended, choppy range around $120.00.

Feeder cattle

Price action: Feeder cattle futures finished 27 1/2 to 57 1/2 cents lower, but that was on or near session highs.

Fundamental analysis: Strength in the corn market pressured feeder cattle futures today. But with live cattle ending high-range, feeder cattle pared losses into the close.

Technical analysis: Key near-term support for October feeder cattle lies at $145.40. A close below that level would signal a short-term top is in place. Key near-term resistance is at $148.12 1/2. Clearing that level would extend the price recovery from the summer low.

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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