Livestock Analysis -- Advice (VIP) -- June 26, 2013

June 26, 2013 10:05 AM


Advice: We advised hedges covering 25% of expected 3rd-qtr. production in Aug. lean hog futures and 25% of expected 4th-qtr. production in Dec. lean hog futures this morning. Our fills were $98.15 in Aug. hogs and $82.50 in Dec. hogs.

Price action: Hog futures closed steady to 20 cents lower and near the lows of the day.

Fundamental analysis: While the product market is holding strong and the cash market has seen limited pressure this week, traders sense a seasonal top is close. As a result, buying interest was limited in lean hog futures today.

Cash hogs were steady to lower as packers align supplies with their holiday-reduced slaughter schedule for next week. Pork cutout values firmed this morning and movement is strong. The lead-month July contract carries a $3.50 discount to the cash index, which should limit near-term selling pressure on futures.

Technical analysis: August lean hog futures continue to show rising volatility, which can be a sign of a topping market. That contract traded above yesterday's high, found support at yesterday's low and closed near the lows of the day. The $97.00 area offers support while the $98.50 area is resistance.

Hedgers: NEW ADVICE: 50% of expected 3rd-qtr. production is hedged in Aug. lean hog futures at an average price of $97.67 1/2 and 25% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $82.12 1/2.

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.



Live cattle

Price action: June live cattle futures finished 12 1/2 cents higher and low-range. Deferred months closed 50 cents to $1.05 higher and on or near session highs.

Fundamental analysis: Fundamental support for live cattle futures remains lacking as Choice boxed beef prices continue to slide and cash cattle trade is still uncertain for the week. But traders are starting to sense a short-term low for the cash and product markets is nearing. As a result, buying interest is starting to perk up.

Cash cattle bids and asking prices remain far apart in the Plains, suggesting active cash trade will again occur late in the week. Bulls argue steady to firmer cash prices compared with week-ago in the Plains is likely as packers haven't actively bought cattle for three weeks and margins are strong. Bears argue that showlist numbers are up again this week in Kansas and Texas and packers won't need to buy as many cattle this week as next week is a holiday-shortened slaughter schedule.

Technical analysis: August live cattle futures continue to find increased chart-based buying after pushing through the 50-day moving average last Friday. Key resistance is at the 100-day moving average, which should be around $122.48 Thursday. A push above that level is likely to trigger more active chart-based buying.

Feeder cattle

Price action: Feeder cattle futures finished 82 1/2 cents to $1.05 higher through the January contract, which was high-range.

Fundamental analysis: Strength in live cattle and a generally soft tone in corn futures today supported feeder cattle futures. The more than $10 premium feeder cattle hold to the cash index did not deter buying interest today. But if the cash market doesn't start to firm, that will limit future buying in feeder cattle futures.

Technical analysis: August feeder cattle futures are signaling a short-term low is in place. But to break the pattern of lower highs, the contract must clear the April 25 high at $152.17 1/2.

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, but feeder cattle buyers should stay in touch to establish long coverage.

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.


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