Livestock Analysis (VIP) -- August 8, 2013

August 8, 2013 10:00 AM


Price action: Lean hog futures closed slightly to moderately higher in narrow corrective trading. Contracts posted gains of 32 1/2 cents to 90 cents and closed mid-range.

Fundamental analysis: Hog futures were higher on spillover strength from cattle futures and generally supportive cash fundamentals. Traders continue to look for the seasonal rise in hog numbers and decline in cash hog and wholesale pork prices, but that trend has not started yet. The pork cutout value rose again this morning and movement remains solid, keeping packer cutting margins in the black. This will tend to keep packers active on filling slaughter needs in the near-term.

Technical analysis: October lean hog futures posted an inside day up following Wednesday's sharp slump. The result is a small uptrend line starting from the late-July low of $82.95 which offers support at $85.00, today's low. That late-July low of $82.95 would become support if the trendline is broken. The $86.50 to $87.00 area offers heavy 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 posted gains of 87 1/2 cents to $2.40 through the August 2014 contract today, though that was only good for a mid- to low-range close.

Fundamental analysis: Cattle futures surged today as traders reacted to news Tyson Foods plans to suspend purchases of cattle fed Zilmax as of Sept. 6. They feel this will lead to less weight gain in cattle, and therefore, a reduced supply of beef. Intra-day profit-taking pulled futures well off session highs into the close, suggesting traders aren't willing to get too aggressive with the long side of the market as they wait on confirmation of short-term lows in the cash and product markets.

The cash cattle market remains quiet, though followthrough buying today after yesterday's strong gains would help feedlots' quest for higher cash cattle prices. But as of early this afternoon, bids and asking prices were still far apart.

Technical analysis: October live cattle gapped above the July high at $126.95 and the late-April high at $127.20, but later filled those gaps. If bulls are unable to trigger fresh buying interest above these levels, today's price action could turn into a bull trap.


Feeder cattle

Price action: Feeder cattle futures finished 92 1/2 cents to $1.70 higher through the January contract.

Fundamental analysis: Feeder cattle futures were fueled by strong gains in live cattle. Tight calf supplies also remain a general source of support for feeders. Traders ignored mild strength in the corn market as they feel upside potential is limited in corn.

Technical analysis: October feeder cattle futures filled this morning's upside gap on the daily price chart, but rebounded to finish near the opening level. The contract has now retraced 75% of the entire price decline from the contract high to the contract low.

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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