Livestock Analysis (VIP) -- September 25, 2012

September 25, 2012 09:46 AM


Price action: Lean hog futures settled low-range in most contracts with losses ranging from 20 to 85 cents.

Fundamental analysis: Lean hog traders took advantage of recent gains by booking profits. The dollar's late move into positive territory, the discount the cash hog index holds to futures and spillover pressure from cattle was also encouraging of this.

But that is the extent of selling interest as both the cash hog and pork product markets are signaling they have put in a short-term low. Cash hog bids were steady to higher again today as packers worked to secure supplies for late-week needs. This week's slaughter is projected at 2.345 million head, which is down from 2.401 last week but still hefty. Plus, demand is finally showing signs of catching up, which has the pork cutout value firm recently.

Technical analysis: October lean hogs settled mid-range, but within the uptrending channel since early September. Bulls are aiming for the Aug. 14 high of $77.70, after which resistance stands at the June low of $79.30. The uptrend drawn off of the September lows intersects at $76.25 tomorrow and is initial support.

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 fell sharply into the close to do near-term technical chart damage. Futures closed $2.25 to $2.60 lower through the October 2013 contract, with far-deferred futures down 55 cents to $1.30.

Fundamental analysis: Funds lightened their long exposure to the market today, which triggered sell stops to sharply extend losses. Cash sources say feedlots are concerned the sharp drop in futures will give them less bargaining power in this week's cash negotiations, especially given the fact packers' profit margins remain in the red. The bulk of last week's cash trade was seen at $126. Early bids in Texas are at $122.

Technical analysis: October live cattle futures violated support at the Aug. 27 low of $123.40 to move to the lowest level since July 26. Next key support lies at the July low of $119.77 1/2.

Feeder cattle

Price action: September feeder futures closed 57 1/2 cents lower, with the rest of the market down $2.05 to $2.27 1/2.

Fundamental analysis: Feeder futures saw spillover from live cattle, as weakness in the corn market didn't provide a short-covering boost. September feeder futures, however, are now back in line with the CME feeder index that stands at $143.10.

Technical analysis: October feeder cattle gapped lower on the open and extended losses to post a monthly low. Next support lies at the Aug. 22 low of $142.00, with resistance at the September high of $148.12 1/2.

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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