Livestock Analysis (VIP) -- December 19, 2013

December 19, 2013 08:07 AM



Price action: Lean hog futures traded very narrowly, posting slight gains of 2 1/2 to 22 1/2 cents. Futures finished midrange but the range was less then 50 cents wide.

Fundamental outlook: Lean hog futures didn't stray too far from unchanged as trades squared positions ahead of the upcoming holiday period. Cash prices were steady to $1 lower on rising supplies. But packer margins remain positive, which keeps them active bidders in the face of strong numbers. The wholesale pork trade weakened again today with the cutout value down $1.00 in morning trading, but movement was a positive 248.15 loads. Slaughter is estimated at 436,000 head, even with a week ago and up from last year's 347,000 head.

Technical outlook: February lean hog futures posted an inside day versus Wednesday's limited action. The compressed trading leaves Tuesday's low of $85.55 as support and the $87.00 area resistance. The Aug. 26 gap just under $85.00 remains the downside target on a resumption of the downmove. February futures need a close above $89.00 to break the November-December downtrend line.

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 near their daily highs, posting moderate gains of 55 to 85 cents.

Fundamental outlook: Live cattle moved higher today in position evening ahead of the release of USDA's Cattle on Feed Report due tomorrow. Today's news, however, was mostly negative.

Choice wholesale beef traded down 49 cents this morning but Select beef moved up 46 cents. Movement was again light at 87 loads. The cash trade responded with some light business being done at around $130 in the Southern Plains -- down $1 from a week earlier. USDA reported weekly U.S. beef sales totaled just 4,800 MT, mostly to Japan, compared with 10,100 MT in the previous week.

Slaughter is estimated at 121,000 head versus 116,000 head a week ago and 118,000 head a year ago.

Technical outlook: February live cattle futures tested support at last Friday's low of $132.12 1/2 and moved higher, closing just under yesterday's high. Futures are compressing in their sideways trading range with support from today's low down to the November low at $131.27 1/2 with resistance starting at today's high and running up to Monday's high at $133.75. A close above that mark would make the $134.50 area the next upside target.


Feeder cattle

Price action: Feeder cattle futures traded higher through the bulk of the day, closing near their daily high with gains of 70 to 97 1/2 cents.

Fundamental outlook: The upswing in live cattle futures coupled with position evening ahead of tomorrow's USDA Cattle on Feed Report lifted prices today. Traders tended to ignore the uptick in corn futures and the stronger U.S. dollar. Instead they focused on technical trading as they attempted to fill the gap left in yesterday's downswing.

Technical outlook: January feeder cattle futures bounced higher today, setting up the $166.00 area as near-term support. The upswing came within 15 cents of filling the downside gap left yesterday. Yesterday's downturn failed to fill the upside gap left Dec. 12, which sets up the $165.70 area as strong support.

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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