Livestock Analysis (VIP) -- December 26, 2013

December 26, 2013 08:26 AM


Price action: Lean hog futures faced pressure throughout the day and ended 30 to 57 1/2 cents lower after a thinly traded session.

Fundamental analysis: Traders worked to reduce risk ahead of Friday's Quarterly Hogs & Pigs Report, which is expected to reflect plans for mild herd expansion amid softening feed prices. In addition, the pork market softened today; the pork cutout value dropped $1.60 and movement slowed to just 122.86 loads this morning.

The cash hog market was variable amid mixed demand. While supplies are ample, some packers are in need of hogs for this week and the next as poor road conditions and sub-zero temps slowed movement to start the week. Plus, some are looking ahead to next week and the possibility of more extreme cold and snow.

Technical analysis: February lean hog futures took out initial support at last week's low and settled low-range, setting the stage for a test of summer-month support that is layered from $83.35 to $82.30. Resistance stands at the top of the Aug. 16 downside gap at $86.95.

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 maintained slight gains through the day and closed 17 1/2 to 42 1/2 cents higher.

Fundamental analysis: Trading volume was light today as traders returned from Christmas. While this week's cash cattle trade is still up in the air, the firmer tone in futures today signals traders sense cash trade will eventually be seen at steady to firmer prices compared to week-ago. With winter-month futures now trading above solidly above last week's cash cattle price, buying interest is likely to be limited tomorrow.

Showlist numbers are down from last week across the Plains except for Colorado. Plus, the Cargill beef plant in Dodge City, Kansas, that had a fire earlier this week is expected to be fully operational by Saturday. That's fueling the bullish cash hopes. But boxed beef movement has been sluggish this week and packers are working with highly negative margins, which could keep them from raising cash bids.

Technical analysis: February live cattle futures are holding within the short-term choppy, sideways range, while also maintaining the uptrend from the May low. Bulls need a close above the October high of $135.40 to push the next leg higher in the uptrend. If support at the November low of $131.27 1/2 is violated, it would signal an extended pullback is underway.


Feeder cattle

Price action: Feeder cattle futures closed 20 to 77 1/2 cents higher for the day.

Fundamental analysis: A firmer tone in live cattle and weakness in the corn market supported feeder cattle futures. Additional support continues to come from tight calf supplies, which is supporting cash feeder cattle prices, though futures already hold a slight premium to the current CME feeder cattle index.

Technical analysis: The short-term pattern for January feeder cattle is choppy, with support at $162.05 and resistance at $169.22 1/2. A breakout from that range will trigger the next extended move.

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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