Livestock Analysis (VIP) -- October 22, 2013

October 22, 2013 09:47 AM


Price action: Lean hog futures gapped higher on the open and ended 50 cents to $1.10 higher through the August contract. This was a high-range close for most contracts.

Fundamental outlook: CME Group issued its first update to the lean hog index since the start of the month today. It revealed cash hog prices have deteriorated less than traders feared, propelling short-covering across the board and especially in the front-month contract, which settled around $2.50 below the cash index.

Strong gains in the pork market yesterday added support early today, but the pork cutout value softened this morning. Buying enthusiasm was also curbed by steady to lower cash hog bids today as packers are having no trouble securing needed supplies.

Technical outlook: December lean hogs gapped higher on the open and left a wide gap on the chart open, despite a low-range finish. The bottom of today's upside gap at $87.95 is support, while the contract high of $89.50 is bulls' next target.

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 gapped higher at the open and firmed through the day to close at their highs for the day. Futures finished 40 cents to $1.07 1/2 higher with December leading gains.

Fundamental outlook: A surge in wholesale beef prices Monday afternoon prompted a gap higher. News of further gains in wholesale beef prices this morning lifted futures further. The gains in wholesale beef will trim negative packer margins and may support stronger cash bids later this week. Showlists are reportedly tight, which will have feedlots asking for higher prices. Slaughter is pegged at 123,000 head compared to 122,000 head the previous week and 128,000 head a year ago.

Technical outlook: December live cattle futures gapped higher and moved higher, leaving the gap open. Futures closed just off their daily highs. Near-term support now starts at today's low, the top of the gap, at $132.35. Resistance is at last week's high of $134.00.


Feeder Cattle

Price action: Feeder cattle futures closed sharply higher and just off session highs in all but the front-month contract. The October contract closed only 22 1/2 cents higher as it holds around a $1.50 premium to the just-returned cash index.

Fundamental outlook: Strength in live cattle futures, weakness in corn futures and sharp losses in the U.S. dollar index combined to send feeder cattle futures higher. Continuing expectations of tightening feeder cattle supplies also supported the market.

Technical outlook: November feeder futures surged to close at their highest level in five days. Support sits at yesterday's low of $166.35, while resistance rests at the $169.00 area.

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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