Livestock Analysis (VIP) -- August 2, 2013

August 2, 2013 09:54 AM


Price action: Lean hog futures finished mostly firmer with the lead-month August contract leading gains and deferred contracts only slightly higher. The August contract closed near the day's highs while deferreds slumped near the close and finished near the day's lows.

5-day outlook: A resurgence in the pork cutout values has moved packer profit margins into the black, which led to the cash market stabilizing this week. If the strength in the wholesale trade can hold, look for steady cash prices again next week.

30-day outlook: Total hog numbers and weights are expected to rise seasonally while wholesale prices are expected to decline seasonally. This should lead to lower cash prices as hog prices follow their seasonal trend toward a late-year low.

90-day outlook: With supplies set to steadily build and weights likely to rise as new-crop corn supplies become available, look for hog prices to follow their normal seasonal decline. But October lean hogs are already trading around $17 below the cash index.

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 ended the day mostly lower, but posted moderate to sharp losses for the week. Feeder cattle futures saw light profit-taking pressure today, but ended firmer for the week.

5-day outlook: News of $119 cash cattle trade to start the day weighed on live cattle futures, but trade picked up at $120 in the Southern Plains, which is $1 higher than last week. Packers raised cash bids given tightening market-ready supplies, which raises expectations that a near-term cash low is in the works. To help propel the cash market next week, the boxed beef market needs to strengthen.

30-day outlook: Traders remain hopeful the cash market will gain upward momentum due to tightening supplies, but in order to encourage traders to rebuild a premium to the cash market, they need to see packer demand for cash supplies strengthen. An expected pickup in retailer beef features this fall should help.

90-day outlook: Recent improvement in feeder cattle futures is a positive sign for live cattle futures, as traders are responding to tightening calf supplies, which ultimately leads to a reduction in market-ready supplies. A 10-year cattle cycle high is still ahead, but has been delayed due to drought in the Southern Plains.

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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