Livestock Analysis (VIP) -- October 31, 2013

October 31, 2013 10:07 AM



Price action: Hog futures closed 25 cents to $1.22 1/2 lower, which was low-range for the day. The front-month December contract led declines.

Fundamental analysis: Weaker cash hog prices along with ideas hog futures have topped triggered profit-taking today. Traders were also evening positions ahead of this afternoon's Cold Storage Report. Adding to the selling pressure was news the pork cutout value slipped another 19 cents in morning trading and movement was a moderate 163 loads. USDA projects slaughter today at 433,000 head, up from last week's 429,000, which is a source of pressure in the cash hog market.

Technical analysis: December futures fell on followthrough from yesterday's key downside reversal. The plunge filled the upside gap left Oct. 25, which triggered sell stops to extend losses. Today's downturn makes the $90.00 area the first line of resistance. The $88.00 area is the first area of support with a stronger area of support at $86.00.

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 favored a weaker tone on the close, with the exception being the October contract that expired $1.15 higher today at $134.50 and June cattle that closed 20 cents higher. December through April futures were 2 1/2 to 40 cents lower for the day.

Fundamental analysis: December live cattle started the day stronger on expectations this afternoon's Cattle on Feed Report would reflect a tightening feedlot situation (see "Evening Report" for more), but profit-taking set in ahead of the close. Traders are still waiting on cash cattle trade to begin, with only light trade reported at steady to firmer prices with last week.

Choice beef values softened by just 9 cents this morning, but are up sharply for the week. While beef movement has slowed this week, strength in the beef market raises expectations for steady to higher cash cattle trade.

Technical analysis: December live cattle futures posted a downside day of trade on the daily chart, but remain within the boundaries of the uptrending channel. Sharp followthrough pressure tomorrow would threaten the uptrend.


Feeder cattle

Price action: Feeder cattle futures ended the day 2 1/2 to $1.12 1/2 lower in all but the October contract that expired 10 cents higher at $165.32 1/2.

Fundamental analysis: November feeder futures are trading at around a $1 discount to the cash index, which should help to limit followthrough pressure tomorrow. But a technical breakdown of the chart signals a steeper correction could be in the works.

Technical analysis: November feeder futures stopped just shy of the 25% retracement level of the rally from the May low to the September high. That level, at $164.20 is initial support. Violation of this support would suggest a steeper correction to the 38% retracement level at $161.34 may be ahead.

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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