Livestock Analysis (VIP) August 15, 2012

August 15, 2012 10:23 AM


Price action: Lean hog futures settled low range with 2012 contracts sharply lower and deferred months seeing losses of 15 to 80 cents.

Fundamental analysis: Hog supplies continue to expand seasonally, which is weighing on the cash hog market. This along with recent weakness in the pork market is weighing on futures. Yesterday, the pork cutout value did rise 67 cents and movement impressed, but traders will need to see consistent improvement before they will be willing to add long positions.

Pressure was initially held off by news a Chinese firm expect the country's imports of U.S. pork to rise 29% this year, but this faded as a strong pork export forecast was already known.

Technical analysis: Today's action in October lean hog futures erased this week's gains; followthrough selling tomorrow would have it testing last week's contract-low, double-bottom support at $74.90. A corrective bounce would have bulls eyeing yesterday's high of $77.70.

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 favored a softer tone into the close, ending 12 1/2 cents higher to 25 cents lower.

Fundamental analysis: Price action was limited as traders wait on cash cattle trade to begin; August live cattle already have $2 higher trade factored into prices. Beef prices have continued to climb this week, with Choice values rising to $191.10 per cwt. this morning. Meanwhile, movement has backed off, suggesting retailers largely have Labor Day features booked. This week's cattle showlist is tighter, which gives feedlots more bargaining power in cash negotiations.

Technical analysis: October live cattle briefly traded above the May high of $127.05 but posted a low-range close. The contract needs consecutive closes above this level to signal a low has been posted and reopen upside potential. Support lies at the late June high of $124.50.

Feeder cattle

Price action: Feeder cattle futures ended 27 1/2 to 85 cents lower, pressured by strength in the corn market.

Fundamental analysis: Following two strong days of price gains, feeder cattle futures set back on profit-taking due to strength in the corn market. But traders look for Friday afternoon's Cattle on Feed Report to reflect a tightening supply situation, as Placements are expected at 91.4% of year-ago levels.

Technical analysis: September feeder cattle futures are signaling a near-term low has been posted, but to confirm this, futures need to complete a 50% retracement of the decline from the June high, which stands at roughly $149.26.

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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