Livestock Analysis (VIP) -- September 26, 2012

September 26, 2012 10:02 AM


Price action: Lean hog futures closed 27 1/2 cents to $1 lower in all but the lead-month October contract, which finished 60 cents higher.

Fundamental analysis: Despite already holding nearly a $4 premium to the cash index, October lean hog futures were supported today by a steady to firmer tone in the cash hog market. That signals traders sense more near-term cash strength is likely.

Meanwhile, deferred lean hog futures were pressured by negative outside markets and sharp pressure on corn and meal futures. The outside market pressure came amid a broad-based risk-averse attitude today as euro-zone concerns resurfaced. Continued pressure on feed prices has traders feeling those hog producers who didn't aggressively liquidate their sow herd will now hold off as feed prices have dropped sharply from the summer highs.

Technical analysis: October lean hog futures continue to extend the uptrend from the September low. Resistance stands at the Aug. 14 high of $77.70. If the uptrend, which intersects around $76.73 tomorrow is violated, the Aug. 22/Sept. 5 double-top at $75.20 is key 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 faced followthrough pressure today and ended mid-range with losses ranging from 32 1/2 to 65 cents through the August 2013 contract.

Fundamental analysis: Early short-covering following yesterday's heavy losses quickly faded and the market succumbed to broad risk aversion across the commodity sector due to heightened euro-zone concerns. This raises concerns about red meat demand.

Weakness in futures encouraged some feedlots in Kansas to move cattle at $123, which is down $3 from the bulk of trade last week. The front-month October contract is at a slight discount to these prices, which could encourage corrective short-covering tomorrow, especially as boxed beef prices and movement improved this morning.

Technical analysis: October live cattle futures traded through but settled just above the July 26 low of $122.15. A close below this level would open downside risk to the $120.00 area, which has stemmed declines four times since April. Old support at the August low of $123.40 is new resistance.


Feeder cattle

Price action: Feeder cattle futures saw two-sided trade today and ended high-range with gains of 25 to 92 1/2 cents.

Fundamental analysis: Feeder cattle futures benefited from heavy losses in the corn market, which signals more near-term pressure on corn is likely. This would be welcome news to producers hit with both drought and high feed costs. But buying interest in the feeder cattle market will likely remain constrained until after the Quarterly Grain Stocks Report on Friday, as the data has been surprising in the past.

The feeder cattle index rose another 11 cents to $143.21 today, which is also supportive.

Technical analysis: October feeder cattle futures hit a monthly low of $144.70 today, which is new near-term support. But today's high-range close should give bulls the initial upper hand. The September high of $148.12 1/2 is resistance.

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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