Livestock Analysis (VIP) -- August 7, 2013

August 7, 2013 09:36 AM


Price action: Lean hog futures faced sharp price pressure following recent, strong price gains and ended $1.02 1/2 to $1.52 1/2 lower in the October through February contracts. The front-month August contract closed 32 1/2 cents lower, with far-deferred futures finished steady to 70 cents lower.

Fundamental analysis: Pressure on August lean hogs was limited as traders work to keep the contract in line with the cash index with just one week until expiration. But after two strong days of price gains, fall- and winter-month futures faced sharp price pressure as traders recognize supplies will be building into year's end.

Traders are keeping a close watch on the pork cutout market, which was 32 cents lower this morning, though movement was strong. The cash hog market was steady to $1 higher today and more of the same is expected tomorrow as packers have ramped up Saturday kill requirements due to profitable margins. But if pork values slide, it would erode packer demand.

Technical analysis: October lean hog futures posted a bearish reversal after moving above yesterday's high. The contract hit sell stops as it filled yesterday's gap area and ended just beneath the psychological $85.00 level. Followthrough pressure tomorrow would have bears targeting last week's low of $82.95, while a recovery would reopen upside potential to the June high of $87.00.

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 closed mixed and near their lows of the day. The lead-month August contract ended 30 cents higher while deferred futures closed 25 cents lower to 7 1/2 cents higher.

Fundamental analysis: Traders continue to look for confirmation of a seasonal low. The boxed beef market obliged with a gain $1.49 in Choice beef prices and 59 cents in Select beef in morning trading. Movement was positive as well.

As usual, cash cattle negotiations have been limited thus far with packers bidding $1.17 while feedlot operators are asking $1.22. Cash cattle traded at $1.19 to $120 in the Southern Plains last week.

Technical analysis: October live cattle futures have support at last week's low at $124.12 1/2. The contract needs to take out the July high at $126.95 to boost bulls' confidence.


Feeder cattle

Price action: Feeder cattle futures slumped more than a $1 lower in the front four contracts and 70 cents lower in the January 2014 contract. Prices finished near the day's lows.

Fundamental analysis: Traders continue to look for supplies to decline and bids to stay strong as feed prices decline. But traders took profits today as they fretted over the $10 premium that exists between October futures and the cash index.

Technical analysis: October futures filled the gap left Tuesday on profit-taking following the summer surge in prices. The $160.00 area is resistance. Support is at the summer uptrend line, which currently intersects about where the contract closed today. The next level of support is at $154.12 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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