Livestock Analysis (VIP) -- August 29, 2013

August 29, 2013 09:46 AM


Price action: Hog futures posted moderate to strong gains and closed near the day's highs. October futures closed $1.27 1/2 higher while the December finished $1.15 higher. Deferred contracts closed higher but with gains of 40 cents to $1.00.

Fundamental analysis: Short-covering dominated the trade late as traders began to more aggressively even positions ahead of month's end. Some fund buying was also noted. Cash prices were weaker today as packers will be closed Monday. But pork cutout values did firm slightly today and movement was positive. Traders are reluctant to press futures lower as the October contract still sports a near $8 discount to the cash index.

Technical analysis: Today's late-surge paints a friendly chart pattern in a market that should be trending lower seasonally. But October futures pressed to a new high for the week and continue to leave Monday's gap area untested. That gap offers support at $85.30 and the August high at $88.30 offers resistance.

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 saw choppy trade this morning, but the market firmed into the close to finish 5 to 32 1/2 cents higher in most contracts.

Fundamental analysis: Traders engaged in some short-covering today ahead of what will be an extended holiday weekend for many. Spillover from the hog market was also encouraging of this, though this was countered by a surge in the U.S. dollar index. Nearby futures are in line with last week's cash prices, but heavier showlist estimates this week and recent slow beef movement could give packers an edge in negotiations, especially since many plants will be closed in observance of Labor Day on Monday.

But supplies are expected to tighten going forward. Key will be how consumers respond to higher beef prices. Much better-than-expected GDP data for the second quarter today was a positive signal for red meat demand.

Technical analysis: October live cattle continue to chop within the island formed by the Aug. 8 upside gap. The gap from $125.42 1/2 to $126.40 marks support, while the August high of $129.05 is resistance.


Feeder cattle

Price action: Feeder cattle futures were mixed this morning, but the market firmed into the close to end at or near session highs with gains of 15 to 37 1/2 cents.

Fundamental analysis: Strength in the U.S. dollar index and choppy action in the corn market encouraged profit-taking in the feeder cattle market at times today. But in the end, the market followed lean hogs and live cattle higher. Today's drought monitor update also reminded the market of widespread drought across the South and West that is spreading in the Midwest and the negative impact this has on pastures.

Technical analysis: October feeder cattle futures nearly matched yesterday's trading range, leaving near-term levels of support and resistance intact at the August low and high of $155.85 and $160.70, respectively.

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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