CME Livestock Outlook: Mixed Hogs, Lower Cattle
11/03/2009 08:38AM
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CHICAGO (Dow Jones)--A mixed Chicago Mercantile Exchange hog open may be in store Tuesday due to possible spillover buying after futures' steep climb Monday versus potential profit-taking, said analysts and brokers.
Late-Monday's $0.51 per hundredweight pork cutout rebound and steady-to-firm cash hog price calls might generate futures buying interest.
Pork packer margins are slipping but are still profitable which could put a floor beneath cash values.
The Dow Jones pork packer margin index for Monday's operations was plus $5.38, compared with plus $6.74 the previous day.
However, December and February are overbought based on their Relative Strength Index conditions and both remain at bearish premiums to CME's hog index.
And, the higher U.S. dollar in overnight action and soft electronic-Chicago Board of Trade corn may weigh on distant hog contracts.
Hog traders have mixed reactions to Monday's confirmation that pigs at an Indiana farm contracted the human strain of H1N1, or swine influenza.
One CME hog trader said what could have been a bearish knee-jerk reaction to the H1N1 news was possibly offset by the realization, at least by traders, that people cannot catch the virus from eating pork.
Another veteran hog broker said Monday's H1N1 developments cannot be regarded as bullish because of the potential negative impact it could have on U.S. pork exports.
Market participants may adjust positions ahead of the upcoming "Goldman roll" period.
The "Goldman roll" consists of funds moving some of their spot-December long positions into nearby-February. The first of five days for the roll will officially start on Nov. 6 and is associated with the S&P's GSCI.
December's 57.25-cents Friday high serves as a price support area. Thursday's 56.80 low and Wednesday's 56.00 high define December's chart gap.
December's 58.50 July 2 and 59.00 July 16 highs are price resistance targets.
February's 64.25 July 20 high serves as an area of price support. The contract's 65.10 June 22 high is a price resistance obstacle.
Pork bellies could open lower led by CME Globex February belly declines and February's overbought technical indictor.
However, short-covering could enter the picture. And, some in the pit may adjust positions before CME's weekly belly storage report on Tuesday after 5 p.m. EST.
February's 88.50-cents Wednesday low is a price support floor. The contract's 90.00 June 3 high is a price resistance threshold.
Cattle Complex
Analysts and brokers anticipate a lower CME live cattle open Tuesday on possible profit-taking by those who were recently long the market and February's overbought chart condition.
Unprofitable beef packer profit margins may affect how much packers spend for supplies this week.
The latest operating margin index for beef packers was minus $15.50 per head, compared with minus $17.85 the previous day, as calculated by HedgersEdge.com.
Beef demand is entering a period when poultry and hams are usually the centerpiece on Thanksgiving Day holiday dinner tables.
Also, overnight-CBOT corn's pullback, U.S. equities' drop and U.S. dollar's upswing could become pressing live cattle matters.
Nonetheless, market bulls are optimistic about this week's cash cattle price prospects based on lighter cattle numbers for sale in parts of the Plains and resurgent wholesale beef demand.
A small number of cash cattle moved in the Texas/Oklahoma area at $88 per hundredweight, which was considered steady for that part of the country.
Packers elsewhere have not responded to $89 to $90 per hundredweight cash-basis asking prices. Fed cattle last week moved at mostly $87.
The U.S. Department of Agriculture's Monday evening boxed beef data showed choice cuts jumped $0.80 per hundredweight, and select items rose $0.45.
December and February live cattle could become the domain of pre-"Goldman roll" activity.
December's 85.88-cents 20-day and 85.80 40-day moving averages are technical support levels. The contract's 86.73 10-day moving average is a chart resistance impediment.
February's 87.34 10-day moving average is a support point. The contract's 87.93 100-day moving average is a resistance mark.
Feeder cattle could open on both sides of the board.
Potential buying leftover from futures' run up Monday, electronic-CBOT corn's setback and higher feeder cattle cash prices are positive market influences.
However, profit-taking and contracts' premiums to CME's feeder cattle index might limit potential futures advances or land some months in negative trading territory.
November's 94.80-cents 20-day moving average is a support floor. The contract's 95.50 10-day moving average is a resistance barrier.
January's 95.41 20-day moving average is a support level. The contract's 95.88 10-day moving average is a resistance obstacle.
(To access the daily livestock market data recap report, keyword search for "Livestock Market Fundamental Data Recap.")
-By Theopolis Waters; Dow Jones Newswires; 312-559-4965; theopolis.waters@dowjones.com