Livestock Analysis (VIP) -- August 15, 2013

August 15, 2013 09:40 AM


Price action: Lean hog futures saw light profit-taking on the open and extended losses around midday, but futures moved off their lows into the close to end 2 1/2 to 85 cents lower through the May contract, with far deferred months mixed.

Fundamental analysis: Traders in the lean hog market took advantage of the market's recent rally by booking profits today. Heavy losses in the stock market and strong gains in corn futures amid supply concerns were also encouraging to this end. The market extended gains after traders learned the pork cutout value plunged $3.05 this morning. This reminded traders pork and cash market prices will soon fall seasonally as supplies expand.

But unexpected strength in the cash hog market in the eastern Corn Belt helped futures move off their lows into the close, though packers in the western Belt paid steady to lower prices for cash hogs. The market's failure to close yesterday's big upside gap was also encouraging.

Technical analysis: September lean hogs tested but failed to close yesterday's wide upside gap. Thus, the bottom of this gap -- $86.60 -- marks support. Resistance stands at the August high of $88.30.

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 faced light profit-taking pressure today following yesterday's gains. But price action was muted as traders wait on cash trade to begin.

Fundamental analysis: Packers and feedlots are still several dollars apart on cash negotiations, raising the likelihood of cash trade late tomorrow afternoon. Traders still expect $1 to $2 higher cash trade with last week's $121 trade due to tighter showlists.

Technical analysis: October live cattle futures posted an inside day of trade on the daily chart and finished mid-range. Initial resistance is at yesterday's high of $128.50, with support at the July high of $126.95.


Feeder cattle

Price action: Feeder cattle futures closed 37 1/2 to 50 cents lower in all but the August contract, which ended 50 cents higher.

Fundamental analysis: August feeders were supported by tightening calf supplies, but the rest of the market softened as corn futures strengthened. August feeder cattle futures ended the day at around a $2 premium to the cash index.

Technical analysis: October feeder cattle futures gapped lower on the open and violated steep uptrending support established from the July low. Flat support lies at last week's low of $158.70, with resistance at last week's high of $160.70.

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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