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Livestock Analysis (VIP) -- December 10, 2013

14:40PM Dec 10, 2013


Price action: The December through April lean hog contracts ended 55 cents to $1.12 1/2 lower, with the rest of the market steady to 45 cents lower. Nearbys posted a low-range close.

Fundamental analysis: Building supplies weighed on nearby futures, with traders reacting to news of steady to $1 lower cash bids today. Cash sources say many plants have already secured the bulk of this week's needs, which signals the cash market will continue to soften as the week progresses.

Meanwhile, USDA raised its 2013 and 2014 pork production forecasts from last month, reminding the market of the building supply situation. Followthrough pressure in the front-month December contract should be limited tomorrow as it holds a slight discount to the cash index ahead of its expiration Friday. But there is more near-term downside risk for the February contract, as it holds a sizable premium to the index and will soon be the lead-month contract.

Technical analysis: February lean hog futures posted a downside day of trade on the chart. Near-term boundaries are support at last week's low of $87.90 and resistance at yesterday's high of $90.15. Violation of support would make bears' next target the August high of $86.25.

Hedgers: 50% of expected 1st-qtr. marketings are hedged in Feb. lean hog futures at $89.70.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.



Live cattle

Price action: Live cattle futures rebounded from earlier weakness to close narrowly mixed. The December and far-deferred contracts ended slightly firmer, while the February through June contracts finished mildly weaker.

Fundamental analysis: Price action was light today as traders wait on a clearer picture of this week's likely cash cattle trade. Given bigger showlists across the Plains except for Kansas and negative packer margins, most traders are anticipating a weaker cash tone this week. But with December live cattle futures trading slightly below last week's cash price, selling interest is limited. Given tight market-ready supplies and wintry weather, traders won't want to push futures too far below the cash market.

Boxed beef trade showed mixed prices and moderate movement this morning. Beef movement likely needs to build if there are hopes of packers raising cash cattle bids this week.

Technical analysis: Trading boundaries for February live cattle futures are well defined, with support at the November low of $131.27 1/2 and resistance at the October high of $135.40. Overall, the contract remains in the uptrending channel from the May low.


Feeder cattle

Price action: Feeder cattle futures posted slight gains in all but some of the far-deferred contracts, which ended slightly lower.

Fundamental analysis: Feeder cattle futures firmed late amid light short-covering and support from weakness in the corn market. Traders also don't want nearby futures to get too far below the cash index given tight calf supplies.

Technical analysis: January feeder cattle futures are holding within the November boundaries from $162.05 to 166.00, though the contract is near the top of that range. A push above $166.00 would open the upside to the contract high at $169.20.

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: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.