Livestock Analysis (VIP) -- September 4, 2012

September 4, 2012 10:24 AM
 

Hogs

Price action: Lean hog futures ended mixed, with October and December up 2 1/2 to 5 cents, respectively. The rest of the market closed steady to 57 1/2 cents lower.

Fundamental analysis: Nearby lean hog futures favored a weaker tone most of the day but posted a high-range close as traders worked to narrow the discount nearbys hold to the cash index. The cash index is projected down $1.69 to stand at $78.60. October hogs ended the day at a $4.40 discount to the index. Given the seasonal increase in slaughter and stepped up herd liquidation, traders feel comfortable with futures trading under the cash market.

The cash hog market was down as much as $2.50 to start the week, which was steeper than most expected. However, packers say they are having no difficulty securing needed supplies, signaling more cash deterioration is likely again tomorrow.

Technical analysis: December lean hog futures ended in line with last week's high of $72.45 and the contract needs to fill in the Aug. 22 gap at $73.00 to signal the market is working on a near-term low. Contract-low support lies at $70.30.

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 closed 5 to 45 cents higher in all but some of the extreme far-deferred contracts following a light day of trade.

Fundamental analysis: Live cattle futures were supported by surprising strength in the cash cattle market, as packers paid $2 to $3 higher prices for cash cattle late Friday. But buying interest was limited by the fact futures already hold a $3-plus premium to the top end of last week's cash range. Still, with boxed beef prices higher this morning, there's hope packers will again pay higher money for cash cattle amid tightening market-ready supplies.

Technical analysis: Key near-term boundaries for October live cattle futures lie at last week's low of $123.40 and the August high of $127.22 1/2.

 

Feeder cattle

Price action: Feeder cattle futures posted mild gains ranging from 27 1/2 to 55 cents.

Fundamental analysis: Feeder cattle were supported despite strength in the corn market. Spillover from live cattle encouraged light short-covering.

Technical analysis: October feeder cattle futures are building a case that a low is in place. Bulls' next upside objective is filling the July 12 gap at $147.50, which is only a dime above today's high. Above that, resistance is at $150.50.

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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