Livestock Analysis (VIP) -- December 30, 2013

December 30, 2013 08:45 AM


Price action: Lean hog futures ended the day mixed, with nearbys 27 1/2 to 67 1/2 cents lower and deferreds up 10 to 65 cents.

Fundamental outlook: Futures started the day stronger across the board in reaction to Friday's bullish Hogs & Pigs Report. The report showed the pig crop and pigs per litter below expectations, as well as featured significant downward revisions to past reports. But the inability of nearby futures to hold early gains signals bears have a strong grasp on the market.

In fact, February lean hog futures posted a bearish reversal in the face of positive fundamental news. This signals there is more downside risk for the market, but we'll look to take profits on hedgers covering 50% of expected 1st-qtr. marketings on signs of a near-term low being in place.

Technical outlook: February lean hog futures gapped higher on the open, but that marked the high for the day and the contract settled just off the session low and posted a bearish reversal. Next support is the 62% retracement of the rally from the March low to the October high, which lies at $84.53. Resistance is at the halfway point of the range at $86.48.

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 finished 12 1/2 to 20 cents higher, closing in the upper third of today's range in the February through August contracts. Deferred contracts finished steady to 17 1/2 cents weaker.

Fundamental outlook: Live cattle futures edged higher in follow-through from record-high cash prices paid for cattle in the Southern Plains Friday and on stronger wholesale beef trade this morning. The posting of record prices supported futures but with futures already in alignment with those cash prices, additional buying interest was limited. However, support did come from the wholesale trade, which saw Choice boxed beef rise $2.33 and Select surge $3.30 in morning trade -- although movement was light.

Bitter cold temperatures across cattle country are expected to keep sales offerings light, which should support cash prices going forward. Slaughter today is estimated at 130,000 head, up from last week's 121,000 head and from 84,000 head a year ago.

Technical outlook: February live cattle futures pressed higher again today matching the October high of $135.40. Today's close marks the first above $135.00 since Jan. 10. A small gap at $135.80 to $136.00 may serve as an upside target but February futures have resistance starting from today's high to the contract high of $138.40. Support is layered from $134.50 to the November low at $131.27 1/2.


Feeder cattle

Price action: Feeder cattle futures finished 7 1/2 to 27 1/2 cents higher, closing at or near their highs for the day.

Fundamental outlook: Feeder cattle futures softened early on profit taking but firmed as live cattle futures held gains and corn futures weakened. The overall fundamentals still point to tight supplies continuing for an extended period of time.

Technical outlook: January futures found support just above $166.00, which has acted as a support zone since gapping above it Dec. 12. The December high of $168.45 is resistance.

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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