Livestock Analysis (VIP) -- September 28, 2012

September 28, 2012 09:39 AM


Price action: While October lean hog futures posted solid weekly gains, the rest of the market ended with losses, although deferred futures recovered much of this week's losses today as traders anticipated this afternoon's Quarterly Hogs & Pigs Report (H&P) would reflect tightening supplies.

5-day outlook: The H&P data came in about as expected, with All Hogs & Pigs, Kept for Breeding and Kept for Marketing coming in even with year-ago levels. The only "glaring" number that wasn't within expectations is the hogs 180 lbs. and over category, which came in at 105% of year-ago levels. But since these hogs have largely already been marketed, the report signals the worst is behind in terms of a surge in pork production.

30-day outlook: In order for the cash hog market to continue strengthening, as it did in September, the pork product market must continue to improve to keep packers' profit margins in the black. If margins slip into the red, it would lower packers' urgency to keep kill lines running as full as possible.

90-day outlook: USDA pegs farrowing intentions in the range of 97% to 99% of year-ago levels. Given the increase in efficiencies via pigs per litter is at 101% of year-ago levels, the report signals pork production next spring will be steady to slightly lower than year-ago levels.

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

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




Price action: Live cattle finished slightly lower to close out a week of heavy price pressure.

5-day outlook: After paying at least $3 lower prices for cash cattle this week, packers will undoubtedly try to lower cash cattle bids again next week. Cattle futures are at risk of mild followthrough selling pressure next week, while upside potential will be limited unless the cash market shows signs of an immediate recovery.

30-day outlook: Traders have some concerns supplies will outpace demand after USDA's Cattle on Feed Report signaled feedlots aren't as current as previously believed. But feedlot supplies are still gradually tightening and demand hasn't shown any major signs of suffering amid the sluggish economy. Unless there is a major shift in market fundamentals, the downturn in cash cattle prices and live cattle futures should be short-lived.

90-day outlook: The long-term price outlook for the cattle market remains bullish as tight calf supplies will limit the number of market cattle. The cycle high in cattle, likely around the middle of next year, will come when cow-calf operators have incentive to start rebuilding herds, which will further deplete the supply of market cattle.

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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