Livestock Analysis (VIP) -- August 22, 2013

August 22, 2013 09:58 AM



Price action: Nearby lean hog futures led declines, closing $1-plus lower. Deferred futures ended 35 to 85 cents lower.

Fundamental analysis: Continued weakness in the pork market spurred futures lower with nearby contracts leading the downward charge. Margins tightened for packers this week, pressuring cash bids up to $1.50 lower today. Cutout values are also lower, falling $1.45 this morning, raising hopes that lagging exports may be priced more attractively to buyers. Weekly pork export sales fell 5,300 MT from the previous week to a total of 7,100 MT during the report week ended Aug. 15.

Technical analysis: December lean hogs futures gapped sharply lower on the open and extended losses to post a low-range close. Bears have taken charge of this market this week, with their next target 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 ended 25 to 80 cents lower as traders wait on cash trade to develop.

Fundamental analysis: Sharp losses in nearby lean hog futures spilled over into live cattle futures today pressuring futures slightly to moderately lower, but two consecutive weeks of strong export sales of 16,100 MT suggest plenty of demand for U.S. beef sendouts. Traders are waiting for cash cattle trade to begin, likely tomorrow, and are making ready for tomorrow's Cattle on Feed Report which is expected to show On Feed and Placements slightly below year-ago and Marketings just above the previous year. See "Evening Report" for pre-report expectations.

Technical analysis: October live cattle gapped lower on the open and extended lossess. The low-range close gives bears more momentum heading into tomorrow's open. Support is at the July high of $126.95.


Feeder cattle

Price action: Feeder cattle futures ended narrowly mixed.

Fundamental analysis: Pressure on corn futures limited pressure in the feeder cattle pit, but the market was ultimately pressured by live cattle. Tight calf supplies also helped to limit price pressure. Traders will be eyeing the Placements number in the Cattle on Feed Report tomorrow to gauge just how tight calf supplies have become.

Technical analysis: September feeder futures posted a very narrow day of price action, pivoting around $157.70.

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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