Livestock Analysis (VIP) -- August 12, 2013

August 12, 2013 09:45 AM


Price action: Lean hog futures got off to a solid start and ended high-range with gains of 60 cents to $1.22 1/2 through the June 2014 contract.

Fundamental analysis: Nearby lean hog futures gapped higher on the open amid technical buying and recent strength in the cash hog market. The cash hog index has ticked up in recent days and bids were steady with a few higher bids today as strong packer cutting margins are giving them incentive to work through seasonally expanding supplies.

Traders showed little concern about a 27-cent decline in the pork cutout value this morning, as this encouraged slightly better movement. The market also paid little attention to USDA's Supply & Demand Report today as the department made few changes to its pork balance sheet.

Technical analysis: October lean hogs gapped higher on the open and enjoyed strong gains for the day. Near-term resistance is closely layered from the July high of $86.87 1/2 to the June double-top of $87.00. Support is in the $83.50 area.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.


Live cattle

Price action: Live cattle futures posted anywhere from a low- to high-range close and finished 25 cents to $1.10 higher, with nearbys leading gains.

Fundamental analysis: Early support came from $1 to $2 higher cash cattle trade late on Friday at $121 in the Southern Plains. This raised expectations the cash market has posted a low. Adding to hopes of a seasonal low being in place is the solid start to the boxed beef market for the week. Choice values were up $1.04 this morning, but movement was light.

This week's cattle showlist is smaller, which is causing early speculation that packers will need to come to the cash market sooner rather than later in the week.

Technical analysis: October live cattle tested resistance at last week's high of $127.67 1/2 and settled mid-range. Closes above resistance would keep momentum clearly with the bulls. Support lies within last week's gap area between $125.42 1/2 and $126.40.


Feeder cattle

Price action: Feeder cattle futures were mixed in early trade, but softened as the corn market firmed. Futures ended 2 1/2 to 47 1/2 cents lower.

Fundamental analysis: Feeder futures softened in reaction to a lower-than-expected U.S. corn crop estimate, as it helped to firm the corn market. But pressure on feeder cattle futures was light as traders expect supplies to continue tightening. August feeder futures are trading at around a $3 premium to the cash index, which raises the potential for followthrough profit-taking as the front-month contract moves more in line with the cash index ahead of expiration.

Technical analysis: October feeder cattle futures gapped lower on the open, filled the gap, but ended near opening levels. But no technical chart damage was done as futures continue in the uptrend established from the May low.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.

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