Livestock Analysis (VIP) -- October 25, 2013

October 25, 2013 09:24 AM


Price action: Lean hog futures closed slightly to moderately higher with April and June 2014 contracts leading gains. Futures gapped higher at the open, held those gains and finished near their daily highs. The market notched contract-high closes.

5-day outlook: Packers continue to cut in the black, giving them incentive to boost prices just enough to keep kill lines filled to capacity. Hog supplies are showing signs of increasing, however, which means packers will not need to bid aggressively to gain supplies.

30-day outlook: Seasonal trends favor lower cash prices and weaker pork product prices. But the surge in boxed beef prices may be supporting pork values as consumers search for a less expensive alternative to beef. Supplies and weights normally rise into November but death losses from PEDV may trim numbers from expectations going forward. With packers cutting in the black due to continuing strong pork product prices, declines in cash hog prices may be limited.

90-day outlook: Hog numbers will decline seasonally after the fall peak, which will support cash prices. The spread of PEDV in North Carolina's hog herd may trim supplies enough to lift prices above previous expectations. Key will be how much spillover demand pork receives from beef as beef supplies are set to tighten even further.

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.



Price action: Live cattle futures saw sharply higher prices today, but end-of-the-week profit-taking set in and futures ended weaker in all but the December contract, which closed 10 cents higher. For the week, December live cattle ended 95 cents above last week's close,

5-day outlook: The combination of tightening market-ready supplies and Choice beef values rising above $200 triggered record-setting cash cattle trade. Packers were forced to pay up to $134 for cattle in the Plains, with the bulk of trade coming in between $131 and $133. Some of the recent rise in the cash market is due to Tyson shutting off imports of market-ready Canadian cattle due to costs associated with COOL. As a result, there is more near-term upside potential in the cash market, although packers' margins remain in the red.

30-day outlook: Expectations packers will cut back kill hours to accommodate fewer market-ready cattle has caused traders to adopt a "cautiously optimistic" attitude toward futures. But with supplies projected to tighten well into 2014, downside risk in futures and cash is limited.

90-day outlook: While domestic demand remains a concern with beef prices rising back above the $200 level, exports are a bright spot for the cattle market. This is in part thanks to weakness in the U.S. dollar index and tight global supplies.

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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