Livestock Analysis (VIP) -- August 26, 2013

August 26, 2013 09:33 AM



Price action: Lean hog futures gapped higher on the open and enjoyed moderate gains most of the day. Futures finished 50 cents to $1.17 1/2 higher for the day.

Fundamental analysis: Lean hog futures enjoyed a strong technical finish Friday, which set the stage for followthrough buying today. Also encouraging of this is the wide discount nearby contracts still hold to the cash hog index, though the index has recently softened. Hot Midwest temps also raise near-term supply concerns as this will limit weight gains and make producers reluctant to market hogs.

But the impact of this is limited as most plants are well supplied for early week needs. As a result, cash hog bids were steady to lower today, despite wide profit margins.

Technical analysis: December lean hog futures today moved into the Aug. 20 downside gap area, the top of which at $83.80 marks resistance. The bottom of today's upside gap at 82.30 is new support.

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 30 cents to $1.10 higher today, with winter- and spring-month contracts leading price gains.

Fundamental analysis: Traders reacted to last Friday's Cattle on Feed Report, which showed all three categories on the bullish side of the average pre-report guesses. With the Placements category being the most bullish, deferred futures led price gains.

Price gains in nearby live cattle futures were limited today by uncertainty with the cash cattle market. While the cash market has put in a seasonal low and is working higher, this week's showlist numbers are up from week-ago after moderate sales last week. As a result, packers may be hesitant to raise cash cattle bids.

Technical analysis: October live cattle are holding with a short-term consolidation range from $126.40 to $129.05. A push above the top of that range would kick off the next move higher.


Feeder cattle

Price action: August feeder cattle closed 60 cents lower, while deferred contracts were sharply lower to limit down.

Fundamental analysis: The surge in corn futures today weighed heavily on feeder cattle, though pressure was limited on the August contract as it's holding near the cash index. If the corn market sharply builds on recent corrective gains, additional pressure is likely on feeder cattle.

Technical analysis: Today's price action signals short-term top is in place for October feeder cattle. Followthrough selling tomorrow would point the contract to a 50% retracement of the summer rally around $153.72.

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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