Livestock Analysis (VIP) -- December 18, 2013

December 18, 2013 09:10 AM


Price action: Lean hog futures moved moderately higher to post gains of 37 1/2 cents in the far deferred December 2014 contract to $1.02 1/2 in the June contract. Futures closed low-range.

Fundamental outlook: Lean hog futures moved higher in short-covering on ideas recent losses have been overdone. Hog runs remain high and packers, who continue to cut in the black, have no difficulty in filling daily needs. Cash prices were steady to weaker. February futures continue to trade at a healthy premium versus the lean hog cash index, which will tend to limit buying interest. The holiday-shortened kill week next week will result in lower packer bids once next week's supplies are covered.

Traders shrugged off news the pork cutout value fell $2.17 in morning trading and focused on the strong movement which occurred on the lower price. Slaughter today is estimated at 435,000, higher than last week's 430,000 and higher than 432,000 posted a year ago.

Technical outlook: February lean hogs opened firmer and traded slightly above yesterday's low, but failed to penetrate resistance at $87.00. This could embolden the bears in Thursday and adds to ideas today's rebound was merely a relief rally from an oversold condition. The November-December downtrend line remains intact and unchallenged. Meanwhile, yesterday's plunge opened downside risk to the late-August low of $83.35, followed by the July low of $82.30.

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 closed moderately lower and near their lows for the day. Losses ranged from 50 to 80 cents, with February futures closing down 62 1/2 cents.

Fundamental outlook: Cattle futures traded lower due to uncertainty over this week's eventual cash trade and impact of next week's holiday-shortened week on packer demand. Showlist estimates are down but kills will be reduced due to the holiday.

Traders continued to express concern over weakness in the wholesale beef trade, but prices firmed somewhat in the morning trade. More importantly, movement was strong at 127 loads in the morning trade, which is a strong rebound from Tuesday's poor movement. Today's estimated slaughter is 122,000 head which is even with a week earlier and down from last year's 126,000 head.

Technical outlook: February live cattle futures followed up on Tuesday's low-range close with further losses today. Near-term boundaries are support at last week's low of $132.12 1/2 and resistance at Monday's high of $133.75.


Feeder cattle

Price action: Feeder cattle futures closed at the lows of the day posting losses of 32 1/2 cents to $1.10, with January futures leading the decline.

Fundamental outlook: Feeder cattle futures faced further profit-taking today, even though grain futures moved lower. Futures felt pressure from losses in the live cattle contracts. The January contract now holds more than a $1 discount to the cash index, which may limit downside pressure tomorrow.

Technical outlook: January feeder futures gapped lower and closed at their lows today. That action coupled with the upside gap left Dec. 22 leaves an island top on the chart. The $167.00 area is resistance while support at $165.70. January futures need a close above contract high at $169.22 1/2 to shake the contract out of its sideways trend.

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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