Livestock Analysis (VIP) -- August 20, 2013

August 20, 2013 10:30 AM


Price action: Lean hog futures enjoyed light buying interest today and ended steady to 50 cents higher in most contracts after a choppy day of trade.

Fundamental analysis: Lean hog futures saw light buying interest today as traders are not yet convinced futures are ready for a seasonal decline, especially with futures prices so far below those of the cash market. Traders worked to narrow the wide discount the October contract holds to the cash hog index today, which even after today's gains exceeds $14. Weakness in the U.S. dollar index added support.

But buying interest is largely limited to short-covering as hog supplies will build through fall and pork prices have softened this week amid slowing demand. Movement did pick up this morning, however. Cash hog bids were steady to lower today despite profitable packer margins.

Technical analysis: December lean hogs gapped higher on the open -- recent action has been quite volatile -- but the contract posted just modest gains for the day. Last week's high of $84.72 1/2 is strong resistance, while support is layered from the bottom of last week's upside gap at $83.30 to yesterday's low of $83.10.

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 the day mixed, with nearbys 7 1/2 to 20 cents higher and deferreds steady to 17 1/2 cents lower.

Fundamental analysis: Upside potential for nearbys was limited as traders wait on cash cattle trade to materialize. Traders don't expect trade to begin until Thursday or Friday as packers' bids and feedlots' asking prices remain several dollars apart. Tighter market-ready supplies gives feedlots more bargaining power, but traders are working to keep August live cattle in line with the cash market. Limiting buying in live cattle futures are demand concerns, as boxed beef movement remains lackluster.

Technical analysis: October live cattle saw a narrow daily trading range. The contract needs closes above last week's high of $129.05 to brighten the technical outlook, while support lies at the July high of $126.95.


Feeder cattle

Price action: Feeder cattle futures closed 25 to 50 cents higher in the 2013 contracts, with far deferreds weaker.

Fundamental analysis: Weakness in the corn market was supportive for feeder futures today, as was strength in the cash market. The cash index rose 24 cents, forcing the August contract higher to remain in line with cash.

Technical analysis: September feeder futures posted an inside day of trade on the daily chart and closed mid-range. Initial resistance is at yesterday's high of $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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