Livestock Analysis (Hog Advice) -- November 14, 2013

November 14, 2013 09:21 AM



New advice: At midday, we advised hedgers to hedge 50% of 4th-qtr. marketings in Dec. hogs, getting to 100% hedged for an average price of $83.74. Hedges covering 50% of expected 1st-qtr. marketings in Feb. futures were also established at $89.70.

Price action: Lean hog futures gapped lower on the open, extended losses, but then came off session lows to post a mid-range close. Nearbys closed 77 1/2 to 97 1/2 cents lower, with deferreds posting more modest losses.

Fundamental analysis: Expectations that market-ready supplies will continue to build triggered an early selloff in the hog pit. With hog weights also rising dramatically since mid-October, traders are concerned the market will be flooded with supplies. But an uptick in pork movement this week should help to eventually ease concerns about building supplies. But for now, funds are lightening their long exposure to the market.

December lean hog futures are now trading in line with the cash index. Therefore, near-term price direction will be led by the cash market, which is expected to trend lower as packers are having no difficulty securing supplies.

Technical analysis: December lean hog futures gapped below the September low of $85.85 and posted a daily low of $85.25 before posting a mid-range close. Today's further technical deterioration makes bears' next target the August high of $84.72 1/2, with key support at the July low of $80.25.

Hedgers: 100% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $83.74; 50% of 1st-qtr. marketings are hedged in Feb. lean hog futures at $89.70.

Feed needs: 25% of 4th-qtr. protein needs are covered in long Dec. meal futures at $422.20 and 25% of 1st-qtr. needs are covered in long March meal futures at $410.80.


Live cattle

Price action: Live cattle futures saw mixed trade at times today, but bulls generally had the advantage in nearby contracts. This helped the market finish 2 1/2 to 22 1/2 cents higher through the June contract, with deferred months slightly lower.

Fundamental analysis: The standoff between packers and feedlots continues, leaving the cattle market to trade mixed as traders speculate regarding at what level trade will get started. December futures have around a $2 premium factored into prices relative to last week's cash trade.

Showlist estimates are slightly higher at most locations this week, but the boxed beef market has exhibited impressive gains this week in terms of movement despite Choice boxed beef values above the $200 benchmark. Choice boxed beef cuts firmed $1.26 and Select rose 51 cents this morning, while movement was decent at 82 loads.

Technical analysis: December live cattle futures continued in their monthly uptrend today, but the contract settled just pennies shy of psychological resistance at $133.00, after which bulls will target the Oct. 17 high of $134.00. Support stands at the November low of $131.55.


Feeder cattle

Price action: Feeder cattle futures gapped higher on the open and ended 17 1/2 to 55 points higher for the day.

Fundamental analysis: Weakness in the corn market gave the feeder cattle market a lift today, as did ongoing awareness of tight feeder cattle supplies. USDA will provide another update on the cattle supply situation next week. Both the November and January contracts are trading in line with the cash index.

Technical analysis: January feeder cattle futures gapped above the $165.00 level today, turning that level into initial support, followed by the November low of $163.45. Bulls' next target is the November high of $166.00.

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: 25% of 4th-qtr. protein needs are covered in long Dec. meal futures at $422.20 and 25% of 1st-qtr. needs are covered in long March meal futures at $410.80.

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