Livestock Analysis (VIP) -- August 27, 2013

August 27, 2013 10:14 AM



Price action: Lean hog futures saw a choppy start but bulls gained momentum into the close and futures ended 12 1/2 to 70 cents higher.

Fundamental analysis: Lean hog futures saw light profit-taking in most contracts on the open following yesterday's gains, but concerns about hog weight gain due to extreme heat across the Corn Belt caused futures to rally into the close. Additional support came from strength in the pork cutout market, as values surged $4.01 this morning thanks to a sharp rise in belly prices. Movement moderated to 175.8 loads.

Strength in the pork market encouraged some packers to raise bids, however, bids were mixed today due to variable demand. Early expectations are for mixed bids again tomorrow.

Technical analysis: December lean hog futures ended up posting a strong upside day of trade on the daily chart, with bulls' next target the August high of $84.72 1/2. Support lies at last week's low of $81.10.

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 faced light pressure throughout the day and ended 10 to 45 cents lower on the day.

Fundamental analysis: Traders booked some profits in the live cattle market today after yesterday's Cattle on Feed Report-inspired rally. Adding light pressure are early signs that feedlots may have a hard time getting better than steady cash prices this week as showlist estimates are larger after just light cash cattle trade last week. Plus, slow boxed beef movement continues to signal consumer resistance to high beef prices.

But overall supply tightness and expectations for a seasonal rally into fall will continue to limit downside risk for the market.

Technical analysis: October live cattle gapped lower on the open but the contract failed to test support at the bottom of the wide Aug. 7-8 gap from $125.42 1/2 to $126.40. Resistance stands at the August high of $129.05.


Feeder cattle

Price action: Feeder cattle futures ended 32 1/2 cents higher in the front-month, while deferred months ended $1.10 to $1.20 higher. This was a high-range close for most contracts.

Fundamental analysis: Ideas the downside was overdone yesterday and weakness in the corn market encouraged active short-covering in the feeder cattle market today. A lower U.S. dollar index was also encouraging to that end. The front-month is now trading in line with the cash index.

Technical analysis: October feeder cattle futures spent the day in the lower half of yesterday's trading range. Support stands at yesterday's low of $155.85, while resistance stands at the psychological $160.00 mark.

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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