Livestock Analysis (VIP) -- October 10, 2013

October 10, 2013 09:13 AM



Price action: Hog futures moved lower after opening steady but firmed to close slightly higher. Futures finished unchanged to 42 1/2 cents higher to post a high-range close.

Fundamental outlook: Hog futures weakened in early trading on news from private sources of a decline in the pork cutout value and rising slaughter runs. Cash hogs were reportedly steady in the western Corn Belt but as much as a $1 weaker in the eastern Corn Belt. Slaughter estimates for Saturday's kill have risen by 20,000 head versus earlier in the week as hog runs are rising.

Technical outlook: Yesterday's bearish reversal placed a decidedly negative mark on the December chart. But futures moved higher after testing the top of the $85.85-$86.00 support zone. Next support is the October low of $85.85, followed by the bottom of the October 3-4 gap area at $84.50. Contract-high resistance stands at $88.90.

Hedgers: 50% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $82.12 1/2.

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 were firmer throughout the day and ended mid- to low-range with gains of 20 to 35 cents.

Fundamental outlook: A combination of tight market-ready supplies and sharp gains in the feeder cattle pit provided support to live cattle futures today. Upside potential was limited by uncertainty surrounding the cash cattle market, as bids and asking prices are several dollars apart. But expectations for at least steady cash cattle trade with last week's $126 prices helped to keep futures supported. Most expect $1 higher cash cattle trade to begin tomorrow afternoon.

Technical outlook: December live cattle futures filled in yesterday's gap area but closed within the gap. Futures need to climb back above last week's high of $132.60 to generate fresh chart-based buying. Doing so would make bulls' next target the February high of $134.75.


Feeder cattle

Price action: Feeder cattle futures gapped higher on the open and extended gains to finish $1.35 to $1.55 higher.

Fundamental outlook: Futures were supported by concerns about death loss in the Northern Plains after the weekend blizzard (see "Evening Report" for more) as well as weakness in the corn market. The bullish technical situation is also building on itself, attracting fresh buyers as psychological levels are met.

Technical outlook: November feeder cattle futures gapped to a fresh contract high and extended gains to post a daily high of $168.05. The high-range close gives bulls the upper hand heading into tomorrow's session, although the contract is vulnerable to profit-taking as traders even positions to close out the week.

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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