Livestock Analysis (VIP) -- August 16, 2013

August 16, 2013 10:01 AM
 

Hogs

Price action: Lean hog futures closed moderately lower and near the day's lows in the October through April contracts. Futures finished higher on the week but today's action filled Wednesday's gap for several contracts, setting up a test of support to start next week's trade.

5-day outlook: Packer cutout margins continue to remain favorable, which should help support cash hogs. But demand for Labor Day features will end soon and seasonal increases in both hog numbers and average weights will weigh on cash prices.

30-day outlook: Cash hog runs normally increase and average weights rise moving into September while wholesale pork demand usually weakens. These should combine, as they normally do, to take cash hog prices lower. While the seasonal trend is negative, October futures have already priced in nearly a $16 discount to the cash hog index, which may limit additional selling pressure on the contract.

90-day outlook: Seasonal trends call for rising supplies and declining cash prices well into fall. Adding to the seasonal pressure will be rising hog weights as finishers gain access to 2013-corn crop supplies. Additionally, lower feed costs will tend to boost farrowings, bringing pressure to deferred contracts.

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.

 

Cattle

Price action: Live and feeder cattle futures saw a choppy day of trade. Live cattle ended narrowly mixed, while feeder cattle futures finished 27 1/2 to 67 1/2 cents higher. Live cattle futures posted slight gains for the week, as did most feeder cattle contracts.

5-day outlook: Action in the live cattle market signals the market believes a seasonal rally is underway as beef prices strengthened last week and showlists estimates tightened. This should lift the market again next week. But slower beef movement last week adds a note of caution.

30-day outlook: Drought remains entrenched in the Southern Plains. Traders will continue to watch the drought profile in the region as well as monthly Cattle on Feed Reports for signs herd rebuilding is starting.

90-day outlook: Cash cattle bids typically rise through November as supplies tighten. This could be even more pronounced this year given tight supplies that are expected to culminate in a 10-year cycle high in 2014. This should point futures higher as well.

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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