Livestock Analysis (VIP) -- August 1, 2013

August 1, 2013 09:53 AM


Price action: Lean hog futures closed 27 1/2 to 85 cents higher through the February contract, while far-deferred contracts ended slightly lower.

Fundamental analysis: Traders narrowed the spread the summer-, fall- and winter-month contracts hold to the cash market today. Support for the corrective buying was tied to recent strength in the cash market and positive packer margins. As a result, traders feel cash hog bids could stabilize and may firm if margins become strong enough. But traders also realize hog numbers will build seasonally, therefore reducing their urgency to actively trim the discount fall- and winter-month contracts hold to the cash market.

Cash hog bids were steady at most locations today, though there were mixed undertones, signaling varied levels of need for near-term slaughter supplies. Mostly steady cash hog bids are expected to close out the week.

Technical analysis: October lean hog futures moved further into Tuesday's big downside gap on the daily chart. The top of that gap at $84.20 is key near-term resistance. Filling that gap could trigger another test of resistance at the June double-top at $87.00.

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 choppy and then lost momentum in light trading to post losses of 65 cents to $1.02 1/2 and finished very near the day's lows.

Fundamental analysis: Traders continued to wait for direction from the live and wholesale markets. A few loads traded at $1.19 in the Southern Plains, even with a week earlier, but the bulk of the feedlots are reportedly still holding out for higher bids. Pressure developed in futures on the disappointing cash trade (traders have been hoping for firmer prices) and news Choice beef weakened slightly in morning trade on moderate movement.

Technical analysis: October futures slumped through the bottom of their month-long sideways trading range, closing under the July 25 low of $1.24.52 1/2. That contract has support layered down to $121.35. Futures need to close above the April 24 high at $127.20 to turn the technical picture bullish.

Feeder cattle

Price action: Feeder cattle futures finished 17 1/2 to 32 1/2 cents higher except for the January 2014 contract, which closed down 32 1/2 cents. Futures posted low-range closes.

Fundamental analysis: Feeder cattle futures tried to ignore the weakness in live cattle futures but gains were trimmed as live cattle futures slumped. Feeders were able to post small gains on the selloff in grain futures and thoughts available supplies will tighten this fall. However, August futures' $5-plus premium to the cash index limited willingness to push up futures.

Technical analysis: September feeder cattle futures gapped higher but fell back from a test of the $158.00 level. Initial support is from $157.00 to $155.30.

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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