Livestock Analysis (VIP) -- August 14, 2013

August 14, 2013 09:55 AM


Price action: Lean hog futures gapped higher on the open and extended gains to end $1.62 1/2 to $1.42 1/2 higher in the October and December contracts, with 2014 contracts mixed. August hogs expired 62 1/2 cents higher to align with the cash index at $102.42 1/2.

Fundamental analysis: Early support came on followthrough from yesterday's gains and spillover from live cattle. Bullish momentum is also building due to talk of ramped up pork buying, although that has not been evident through pork product reports so far this week.

Meanwhile, the cash hog market softened today, with packers saying this week's needs have been secured. Expectations for steady to weaker cash trade could result in some profit-taking in futures tomorrow, as traders for the time being are focused on narrowing the sharp discount nearby futures hold the cash index. The October contract is now the lead-month contract and ended the day at more than a $14 discount to the cash index.

Technical analysis: October lean hog futures gapped above the June high of $87.00 and buying accelerated as the contract cleared the February high of $87.60. Bulls' next target is the contract high of $88.90. Support lies within today's gap area between $87.50 and $86.60.

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 ended 2 1/2 to 10 cents higher through the February contract. Far-deferred contracts finished slightly lower.

Fundamental analysis: Price action was choppy today as traders wait on direction from the cash cattle market. While traders are hopeful cash cattle prices will move higher again this week amid much tighter showlist supplies and profitable margins, nearby futures already hold a $3 premium to last week's trade, which limited buying today.

Boxed beef prices were sharply higher this morning and packers moved a solid 136 loads of product. If the boxed beef market shows further signs of putting in a seasonal low, it would aid feedlots' efforts to get packers to again raise cash cattle bids.

Technical analysis: October live cattle futures were unable to keep this morning's upside gap open on the daily price chart. But the technical picture is strengthening as futures continue to recover from the May low. Today's high at $128.50 is initial resistance, followed by the late-March correction high at $129.55. Last Thursday's upside gap from $126.40 to $125.42 1/2 is strong near-term support.


Feeder cattle

Price action: Feeder cattle futures finished 25 to 32 1/2 cents lower through the January contract, which was mid- to low-range.

Fundamental analysis: A lack of strong buying interest in live cattle and a late firming in the corn market triggered light profit-taking in feeder cattle into the close. Despite the premium feeder cattle hold to the cash index, however, selling interest remains limited, signaling attitudes are friendly as traders expect prices to rise amid tightening calf supplies.

Technical analysis: October feeder cattle futures are pausing after retracing 75% of the entire price decline from the contract high to the contract low. How futures react at this level will determine if futures rally to challenge the contract high or post a corrective pullback.

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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