Livestock Analysis (VIP) -- August 21, 2013

August 21, 2013 10:03 AM


Price action: Lean hog futures extended losses around midday with nearbys ending $1.12 1/2 lower. The rest of the market ended 5 to 77 1/2 cents lower.

Fundamental analysis: Futures were pressured by building supplies and weakness in the cash hog market, as packers say they are having no difficulty securing supplies. The cash market was 50 cents to $1 lower today due to light demand, with similar bids expected tomorrow.

But nearby futures widened their discount to the cash index today, which should give way to short-covering tomorrow. October hogs ended the day at around a $15 discount to the index.

Technical analysis: December lean hogs gapped below the $83.00 level and extended losses, making resistance yesterday's low of $83.55. Bears' next target is the $82.00 level, followed by the July low of $80.25.

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 were mixed today, with the front-month contract ending 30 cents higher. The rest of the market ended 10 to 45 cents lower.

Fundamental analysis: August live cattle remained supported by expectations for at least $1 higher cash cattle trade, although late-week trade seems likely. Tighter market-ready supplies are giving feedlots more bargaining power this week and traders look for the cash market to improve seasonally. Meanwhile, recent lackluster beef movement raises concerns that high prices are curbing consumer demand. This morning, however, movement did improve.

Technical analysis: October live cattle slid below support at yesterday's low, but posted a fairly narrow day of price action. The contract needs to move above last week's high of $129.05 to open additional upside potential. Support lies at the July high of $126.95.


Feeder cattle

Price action: Feeder cattle futures were 40 to 55 cents weaker in all but the front-month contract which ended 17 1/2 cents higher.

Fundamental analysis: Feeder futures were pressured by strength in the corn market, as traders worry higher feed costs will soften demand for calves. But pressure on futures was limited by strength in the cash market and tightening calf supplies.

Technical analysis: September feeder futures settled at session lows, which could set the stage for followthrough selling tomorrow. Initial support is at the August low of $156.30.

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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