Livestock Analysis (VIP) -- October 3, 2013

October 3, 2013 09:43 AM


Price action: Lean hog futures were stronger throughout the day on short-covering and closed 20 to 60 cents higher, which was mid- to low-range for the day.

Fundamental analysis: Following back-to-back days of sharp price pressure traders felt the need to cover short positions. Traders say the negative Hogs & Pigs Report is now factored into the market and with the government shutdown impacting the flow of information to the market, buying was limited in futures today.

The cash hog market was steady to weaker again today, with similar bids expected tomorrow as packers say they have had no difficulty securing supplies this week.

Technical analysis: December lean hog futures gapped higher on the open and left a small gap open on the chart. Near-term boundaries are support at this week's low of $85.85 and contract-high resistance of $88.90. Volatile price action between those levels is a signal the market is working on posting a high.

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 firmed somewhat after opening weaker and finished the day narrowly mixed. Futures closed near the day's high. October futures closed up 12 1/2 cents while December and February futures finished 5 cents and 10 cents weaker, respectively.

Fundamental analysis: Traders took profits after the recent surge in prices. Additionally, some traders are evening positions as they are unwilling to hold open positions when they lack slaughter and wholesale meat data due to the government shutdown.

Feedlots raised bids this afternoon, which spurred some light cash trading at $126 in Texas and Kansas (steady with week-ago) and at $125 in Nebraska (down $1 from last week).

Technical analysis: December futures found support at Friday's and Monday's lows of $131.40. It continues to have resistance at Friday's high of $132.25. Futures have traded sideways since making the high on Friday and has broken the steep late-September uptrend line as a result. It takes a close above Friday's high to encourage the bulls.


Feeder cattle

Price action: Feeder cattle futures traded slightly to moderately lower today. November futures finished 57 1/2 cents lower and near their daily lows. February through May 2014 contracts finished 20 to 37 1/2 cents lower.

Fundamental analysis: Futures retreated on some profit-taking following the recent price surge and the slight lift in corn futures. The basic fundamentals still point to tightening supplies, with a slight improvement in pasture conditions indicated by the drought monitor suggesting potential rising demand for stockers for grazing.

Technical analysis: November futures edged lower on light profit-taking today. The recent price surge confirms an upside breakout, with $167.00 as the upside objective. The $164.40 to $164.55 area provides support.

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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