Livestock Analysis (VIP) -- August 9, 2013

August 9, 2013 09:46 AM
 

Hogs

Price action: Lean hog futures opened weaker and traded in a relatively tight range. Futures closed just slightly lower and near the day's highs. For the week, futures posted moderate gains.

5-day outlook: Packers continue to cut in the black, which should support cash bids early next week. But pork cutout values have shown weakness of late. If that weakness persists, look for packers to lower their bids, as well.

30-day outlook: Hog numbers are expected to rise seasonally at the end of August and into September. Wholesale pork demand normally weakens as well. The combination will pressure cash hog prices as the month progresses. However, the trade will watch to see if retailers feature pork instead of beef for the Labor Day holiday. If that occurs, it could delay the slump in wholesale pork prices and support the cash market.

90-day outlook: Hog supplies and average weights will rise seasonally through fall, which will pressure prices. Wholesale pork prices normally weaken as well on the increase in supply and the turn by consumers back to beef over pork. That's bearish for cash prices, as well. However, traders have already priced in about a $17 decline in prices between the current cash index and October futures. That makes hedging at current levels unattractive. But with lower feed costs ahead, hog weights and numbers will likely increase. That means rallies in futures should be viewed as hedging opportunities.

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.

Cattle

Price action: Live cattle futures closed mixed today with the August through December contracts finishing slightly lower and farther-deferred contracts posting slight gains. For the week, live cattle futures posted gains thanks to Thursday's sharp gains. Feeder cattle finished slightly lower amid light profit-taking.

5-day outlook: Traders are still waiting on solid proof of a seasonal low in the cash cattle and boxed beef markets. Until lows are in place, buying interest in live cattle futures will be limited, though the mild premium futures hold to the cash market signals traders expect a low to be confirmed soon.

30-day outlook: Buying ahead of Labor Day and for early fall beef features typically starts to support the boxed beef market around this time. So far, however, retailers have been slow to step up beef purchases despite the sharp drop in boxed beef prices since early July. Instead, retailers are favoring pork.

90-day outlook: Tyson Foods' decision to suspend purchases of cattle finished with Zilmax as of Sept. 6 may mildly reduce beef supplies as finished weights will likely drop. If no other beef processors follow suit, however, the impact will be limited.

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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