Livestock Analysis (VIP) -- August 5, 2013

August 5, 2013 09:38 AM


Price action: August through February lean hog futures closed 90 cents to $1.55 higher. Farther-deferred contracts finished mostly higher. Futures closed high-range.

Fundamental analysis: Traders worked to narrow the discount between futures and the cash market today. August hogs are now trading about in line with the CME lean hog index, suggesting price action in the lead-month contract from now until expiration on Aug. 14 will be driven by daily movement in the cash hog market. Traders also narrowed the discount fall- and winter-month contracts hold to the cash market. While hog production will build seasonally, traders felt the discount they had built in was too great.

Cash hog bids were steady at most locations today, though some weaker bids were reported. While packers have profitable margins, the price action in the cash market today signals they don't feel there will be a problem securing needed supplies.

Technical analysis: Tough resistance for October lean hog futures stands at the July high of $86.87 1/2, followed by the June double-top at $87.00. Clearing that level would open the upside to the contract high at $88.90. But failure to clear the June high would suggest futures are pointed back toward support at $83.45 and $82.95.

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 were unable to hold onto early gains and finished the day narrowly mixed. Futures closed near session lows.

Fundamental analysis: Traders started the week with bullish cash cattle hopes after prices pushed to $120 in the Southern Plains late last Friday, which was $1 higher than trade earlier in the week and above the week prior. But buying interest faded as the session progressed as traders are unwilling to actively buy futures until the boxed beef market shows signs of a low.

Boxed beef prices were 7 to 43 cents lower and packers moved only 72 loads of product this morning. With retailers showing a lack of willingness to actively buy beef despite the sharp drop in price from the all-time high earlier this year, demand concerns remain.

Technical analysis: August live cattle futures posted an inside day down on the daily price chart. If support at last Friday's low is violated, next support would be at $120.00. A drop below that level would open downside risk to the contract low at $117.90. To the upside, key near-term resistance stands at the June high of $123.10.


Feeder cattle

Price action: Feeder cattle futures traded within a tight range and finished narrowly mixed.

Fundamental analysis: Weaker corn futures helped support feeder cattle today, but a lack of sustained strength in live cattle limited buying in feeders. The premium feeder cattle hold to the cash index also limited buying.

Technical analysis: October feeder cattle futures remain in the solid uptrend from the summer low. Initial resistance stands at last week's high at $159.87 1/2. Key near-term support are at $157.50 and $155.67 1/2.

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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