Livestock Analysis (VIP) -- August 19, 2013

August 19, 2013 09:55 AM


Price action: Lean hog futures faced light pressure for much of the day, but futures improved into the close to end mixed. Nearbys closed steady to 25 cents lower, with deferreds up 7 1/2 to 55 cents.

Fundamental analysis: Concerns about building supplies limited buying in nearby futures to periods of short-covering. The seasonality of the hog market led to profit-taking in nearby futures, although futures came off session lows into the close.

The cash hog market was steady to weaker today and traders will be paying extra attention to the pork cutout market. If pork values slide, it would suggest supplies have become burdensome. Packers say early week needs are largely secured, which leads to expectations of steady to softer bids again tomorrow.

Technical analysis: December lean hog futures gapped lower on the open, but the contract filled the gap on a late-session recovery. Followthrough selling tomorrow may suggest a high has been posted. But today's high-range close signals the market may have a bit of upside remaining.

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 started the day under light pressure but firmed in afternoon trade. August futures ended 25 cents lower, with the rest of the market 15 to 52 1/2 cents higher.

Fundamental analysis: Early weakness was tied to profit-taking, but that eventually gave way to fresh buying as traders suspect the market has posted a seasonal low. Cash cattle trade late last week got underway at $123, which is $2 higher than the previous week and above traders' expectations due to tightening markt-ready supplies. Choice boxed beef prices firmed 83 cents this morning, which was also supportive of short-covering this afternoon. August live cattle are trading in line with last week's cash market, which limited price action in the front-month contract.

Technical analysis: October live cattle posted an inside day of trade on the daily chart but posted a high-range close to keep the short-term trend pointed up. Initial resistance is at last week's high of $129.05, with support at the July high of $126.95.


Feeder cattle

Price action: Feeder cattle futures were choppy today but firmed into the close to end 12 1/2 to 27 1/2 cents higher.

Fundamental analysis: Strength in the corn market limited buying, but tightening calf supplies supported the front-month contract. August feeder futures are trading at around a $3 premium to the cash index, signaling traders have a positive near-term bias toward the cash market.

Technical analysis: September feeder futures saw limited price action today and remain confined with the boundaries of the month-long consolidation range. That range extends from $156.30 to $158.50.

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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