Livestock Analysis (VIP) -- December 16, 2013

December 16, 2013 08:56 AM


Price action: Lean hog futures traded slightly lower today, continuing December's price slide. Contracts closed mid-range. Futures finished from unchanged in May futures to 55 cents lower in the lead February contract.

Fundamental outlook: Hog supplies continue to remain large, making it easy for packers to fill kill lines. Packers continue to cut in the black, which tends to limit price declines. Cash prices were steady to $1 lower today and more of the same is expected tomorrow. The wholesale pork market did provide some support with the morning trade coming in $3.39 higher and movement a positive 213.8 loads.

But with the lead February contract priced more than $5 above the cash hog index, traders tend to favor the sell side of the market. It will take a downturn in supplies to move attitudes to the plus side and that downshift does not appear to be imminent. Slaughter today is pegged at 438,000 head, up from 435,000 the previous week and 433,000 a year earlier.

Technical outlook: February futures continue to slump with futures posting their lowest close since Aug. 30. The next level of support is at $86.25 with the gap area left on Aug. 26 and sitting just under $85.00 a downside target if that support zone breaks. Resistance starts at $87.30. It takes a close above $89.55 to confirm a low has been posted.

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 opened under pressure but recovered on strength in the beef market. Live cattle closed 12 1/2 to 65 cents higher, which was near session highs.

Fundamental outlook: Early pressure was tied to concerns the cash market has posted a seasonal high, but strength in the boxed beef market this morning attracted fresh buying. Choice beef values firmed $1.23 and Select rose $1.10 on solid morning movement of 96 loads. With this week's cattle showlist down from last week, continued strength in the beef market could force packers to raise bids from last week's $131 to attract cattle.

Technical outlook: February live cattle posted a strong upside day of trade on the daily chart. The contract filled last week's gap area, which triggered buy stops on the move to $133.75. Futures closed off the daily high, but still finished above last week's high.


Feeder cattle

Price action: Feeder cattle futures favored a firmer tone in mixed trade in the early going but extended gains on spillover from live cattle. Futures ended 32 1/2 cents to $1.32 1/2 higher, with nearbys leading gains.

Fundamental outlook: Feeder cattle futures faced pressure on the open, but the market later found support from tight calf supplies and weakness in the corn market. Traders extended gains as buying picked up in live cattle futures. January feeder futures are trading in line with the cash market after today's strong gains.

Technical outlook: January feeder futures posted a strong upside day of trade on the daily chart to make bulls' next target the contract high of $169.22 1/2. Support lies at the bottom of last week's gap area at $165.70.

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.

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