Livestock Analysis (VIP) -- August 13, 2013

August 13, 2013 09:45 AM


Price action: Lean hog futures finished with gains of 10 to 40 cents through the February contract. Far-deferred contracts ended narrowly mixed.

Fundamental analysis: August hogs were supported by the discount the contract holds to the cash market and steady to firmer cash hog bids. August hogs expire at noon CT tomorrow. Fall- and winter-month contracts were also mildly supported by the big discount they hold to the cash market. While hog supplies will build seasonally into year-end, traders have been working the narrow the spread as the cash market is holding together better than anticipated.

Cash hog bids were steady to $1 firmer today as packers are working with profitable margins, and therefore, looking to keep kill lines as full as possible. As long as margins are favorable, the cash hog market will remain supported.

Technical analysis: October lean hog futures are trading just below layered resistance from $86.65 to $87.00 -- the area that stalled the last three rally attempts. A push above this resistance would open upside potential to the contract high at $88.90. Failure to clear the layered resistance would point the contract toward support in the $83.45 to $82.95 range.

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 saw followthrough buying today, which propelled futures to multi-month highs. Most contracts ended with gains of 30 to 67 1/2 cents.

Fundamental analysis: Recent strength in the cash cattle market and tighter showlist estimates this week that are indicative of supply tightening to come lifted futures today. Yesterday and this morning, both Choice and Select cuts rose in price, though movement was light this morning. If beef prices continue to rise, feedlots should be able to secure firmer cash prices again this week. Last week, sales took place at mostly $121 in the Southern Plains, up $1 to $2 from the week prior.

Futures also benefited from some technical buying as the market has shown no signs it will test last week's wide upside chart gap.

Technical analysis: October live cattle appear headed for a test of the March high of $129.55, after which resistance is at the psychological $130.00 mark. The Aug. 8 gap from $125.42 1/2 to $126.40 is strong support.


Feeder cattle

Price action: Feeder cattle futures saw mixed trade early this morning, but the market firmed as the day progressed and futures ended 35 to 70 cents higher.

Fundamental analysis: Softer corn prices, tightening calf supply prospects and spillover support from the live cattle market combined to support feeder cattle futures today. The market did see profit-taking at times this morning.

Technical analysis: October feeder cattle futures posted an inside day of trade but settled high-range. Followthrough buying would have bulls testing yesterday's high of $160.70. The contract settled steady with initial psychological support at $160.00.

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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