Livestock Analysis (VIP) -- August 23, 2013

August 23, 2013 10:15 AM


Price action: Lean hog futures posted a bullish upside reversal today and futures ended 20 to 70 cents higher for the day. Nevertheless, the market posted moderate to sharp losses for the week.

5-day outlook: Today's bullish technical finish could set the stage for some light short-covering in nearby futures early next week, but otherwise upside potential is likely limited as the cash hog market has slipped this week, limiting traders' urgency to narrow the discount nearby contracts hold to the cash hog index.

30-day outlook: Hog supplies are building seasonally and this will continue into 2014 as cooler temps cause an uptick in animal weight gain. Also, pork demand typically slows after Labor Day. This means the cash and lean hog markets will likely continue their seasonal decline.

90-day outlook: Typically the product and futures markets put in a seasonal lows in late September and then rise seasonally as holiday buying by retailers picks up. The extent of this rally will depend in part on the pork supply situation. Recent Cold Storage Reports have signaled improvement in working through surplus pork supplies.

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.



Price action: Live cattle futures closed steady to 50 cents lower, with feeder futures 45 cents to $1.15 lower. Late-week price action came as traders evened positions ahead of the Cattle on Feed (COF) Report and were disappointed by the steady start to the cash market in Nebraska.

5-day outlook: Futures should see a boost on Monday as traders react to COF data. On Feed at 94% and Placements at 90% of year-ago came in below expectations, while a more aggressive Marketings pace at 105% of year-ago helped to tighten the near-term supply picture. The report is especially supportive for deferred futures, as calf supplies have tightened dramatically.

30-day outlook: But traders remain concerned about the impact high beef prices are having on domestic demand. Consumers are being cautious about their beef purchases, while exports have been strong. While demand will continue to be monitored, a sharp tightening of supplies should keep the market headed into the 10-year cycle high.

90-day outlook: There is also growing concern about the impact of cattle weights due to the limited use of the feed additive Zilmax. The market will be paying close attention to cattle weights, as feedlots adapt to new practices, which could alter their marketing plans.

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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