Livestock Analysis (VIP) -- December 2, 2013

December 2, 2013 08:43 AM



Price action: Lean hog futures did not stray far from unchanged today and the market ended narrowly mixed.

Fundamental analysis: The cash hog index has firmed the past few days as building supplies are being met with strong demand from packers who are enjoying wide profit margins. Plus, some packers came out of the holiday in need of supplies for the week ahead. Today's kill is estimated at 440,0000 head, which is up 15,000 head from last week and 7,000 head above year-ago.

But the cash hog index remains more than $4 below the December contract and pork movement slowed Friday and today. Just 127.87 loads changed hands this morning on a $1.40 jump in the pork cutout value.

Technical analysis: The February lean hog contract continues to consolidate between the November low of $89.55 and the Nov. 27 high of $91.40. A downside breakout would open risk to the Sept. 20 low of $87.75, while a move to the upside would point the contract toward a test of the approximate triple top around $92.35.

Hedgers: 100% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $83.74; 50% of 1st-qtr. marketings are hedged in Feb. lean hog futures at $89.70.

Feed needs: Profits were claimed on the long hedges held on 25% of 4th-qtr. protein needs in Dec. soybean meal futures. 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.


Live cattle

Price action: Live cattle futures finished narrowly mixed, ranging from 22 1/2 cents lower in the front-month contract to 2 1/2 cents higher in the February contract. Futures closed midrange.

Fundamental analysis: Traders focused on evening positions ahead of the resumption of cash activity later in the week. The cash market saw trading at $132 in the Southern Plains last week, which is $1 higher than the previous week but $1 below the December contract.

The wholesale beef market saw Choice beef slip 12 cents in morning trading but Select beef firmed 52 cents. Movement was very slow at 28 loads, which will likely keep packers reluctant to lift bids. Today's slaughter is estimated at 117,000 head versus 124,000 last week and 120,000 a year earlier.

Technical analysis: February futures found support just above the $134.00 and closed slightly higher, marking the fifth straight higher close. Resistance begins at Friday's high of $134.70, with $133.00 providing support if prices take out today's low.


Feeder cattle

Price action: Feeder cattle futures closed narrowly mixed, ranging from 12 1/2 cents lower in the January contract to 22 1/2 cents higher in the April contract.

Fundamental analysis: Feeder cattle futures found support through much of the day's trading session from weakness in corn and soybean futures. But the late-session lift in corn futures prompted the slip into the negative territory for the lead January contract.

Technical analysis: January futures traded in a very narrow range confined by last week's high at $165.62 1/2 and support at $165.00. A small gap at $164.40 to $164.90 left Wednesday is a downside target if support at $165.00 fails. Resistance exists from $165.62 1/2 to $166.00.

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: Profits were claimed on the long hedges held on 25% of 4th-qtr. protein needs in Dec. soybean meal futures. 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.

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