Livestock Analysis (VIP) -- December 23, 2013

December 23, 2013 08:37 AM


Price action: Lean hog futures saw a choppy day of trade and ended narrowly mixed with the February and April contracts 5 to 22 1/2 cents lower.

Fundamental analysis: Trading volume was thin in the hog market today as many have or will soon leave the market for an extended holiday break. The lean hog market has recently been in a downtrend, but traders are unwilling to add short positions ahead of the holiday. The impact of porcine epidemic diarrhea virus (PEDV) on 2014 hog production remains uncertain, making traders hesitant to push futures lower for the time being, especially after recent, sharp losses.

Meanwhile, the cash hog market continues to trend lower as demand is limited and supplies are ample. On a more positive note, pork movement picked up to 235.89 loads this morning on a steady pork cutout value.

Technical analysis: Near-term resistance for February lean hogs is the $86.50 level, followed by the psychological $87.00 mark that roughly coincides with the top of the Dec. 16 downside gap. The December low of $85.55 is support.

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 2 1/2 to 25 cents higher through the August contract and 2 1/2 to 5 cents lower in the the far deferred contracts. Futures closed mid- to low-range.

Fundamental analysis: Live cattle futures traded higher in reaction to the friendly Cattle on Feed Report released Friday. But gains were limited as strong gains were posted ahead of the report, leading traders to "sell the news" and take profits. The market received some support from the bitterly cold temperatures sweeping through Plains and Midwest, stressing livestock and reducing feedlot operators' interest in shipping cattle. Cash negotiation are on holiday as packers assess needs and their holiday-disrupted slaughter schedules.

The wholesale trade was mixed this morning with Choice beef down 14 cents but Select beef quoted $1.18 high. But movement was a lackluster 54 loads. Estimated daily slaughter is 121,000 head, up slightly from 120,000 a week early and up sharply from last year's holiday-impacted 32,000 head.

Technical analysis: February futures fell back after testing resistance from $134.00 to $134.50. But futures did manage to finish slightly higher. Friday's gap area, starting at $133.40, serves as a downside target and support area.


Feeder cattle

Price action: Feeder cattle futures finished mixed, with January futures closing down 30 cents but the March through August contract closing steady to up 22 1/2 cents. Futures closed mid- to high-range.

Fundamental analysis: Feeder cattle futures found support from Friday's friendly Cattle on Feed Report and slight gains in live cattle futures. The slight uptick in corn futures acted to trim advances.

Technical analysis: January futures traded narrowly between resistance at $167.00 and support at $166.00. The mid-November/December short-term uptrend line offers support at $165.50.

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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