Livestock Analysis (VIP) -- September 24, 2012

September 24, 2012 10:26 AM


Price action: Lean hog futures recovered from a weaker start to favor a firmer tone by the close. October through February futures closed 7 1/2 to 70 cents higher, with April down 17 1/2 cents.

Fundamental analysis: Early light pressure was tied to Friday's Cold Storage Report, which showed record-large pork stocks in freezers at the end of August -- suggesting demand wasn't keeping up with supplies. But ideas the worst is now behind the market as the cash hog market has begun to recover gave way to "value buying."

The cash hog market was mostly steady to start the week, but cash sources say this week's slightly tighter supplies make them optimistic a firmer bias could develop depending on how the pork market performs early this week. The CME lean hog index is projected up $1.42 to $70.35 tomorrow. October hogs hold around a $6 premium to the index.

Technical analysis: October lean hog futures posted an upside day of trade on the daily chart, with next resistance the 50% retracement of the decline from the July high, which stands at $77.30. Initial support is at the 38% retracement at $75.68.

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 started firmer, but gradually faded and closed slightly lower in most contracts. Futures finished low-range across the board.

Fundamental analysis: Mild bear spreading was seen throughout much of the morning as traders factored in last Friday's Cattle on Feed Report. With the report data in the market, focus will be on boxed beef and cash cattle trade the remainder of the week. After steady to lower cash cattle prices last week, many traders sense a short-term top in the cash market is close, if not already in place. This morning's boxed beef performance, which featured lower prices and light movement, added to the cash trepidation and helped lead to the low-range close in live cattle futures.

Technical analysis: October live cattle are signaling a short-term technical top is in place. Key near-term support lies at the August low of $123.40. A close below that level would open downside risk to the $120.00 area.

Feeder cattle

Price action: Feeder cattle futures finished slightly higher in all but the lead-month contract, although that was low-range for the day.

Fundamental analysis: Pressure on corn futures supported feeder cattle futures today. But buying interest was limited by still-strong feed prices, which could curb demand for calves moving forward, especially given the tight supply.

Technical analysis: For October feeder cattle futures to build short-term momentum, the contract must clear the Sept. 13 high of $148.12 1/2. Near-term support extends from last week's low of $145.90 to the contract low at $138.30.

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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