Livestock Analysis (VIP) -- December 31, 2013

December 31, 2013 07:41 AM


Price action: Lean hog futures closed fractionally mixed in very thin trading with February futures up 45 cents, the April through June contracts finished unchanged to 22 1/2 cents higher. The July and later contracts finished unchanged to 15 cents lower.

Fundamental outlook: Futures edged higher today on light short covering following Monday's losses. The cash market was generally weaker but difficult weather conditions in the Midwest are disrupting transportation. February futures gained support from the morning wholesale trade which saw the cutout value rise $1.09 on strong movement of 387.28 loads. Attitudes remain bearish, however, as the market has yet to give confirmation of a seasonal low.

Technical outlook: February lean hog futures failed to followthrough on yesterday's bearish reversal, posting an inside day instead. However, due to both month-end and year-end evening occurring in thin trade, technical signals may prove somewhat misleading. Today's uptick in February futures suggests support rests in the Aug. 26 gap from $85.00 to $84.55. The bottom of the gap coincides with the 62% retracement of the rally from the March low to the October high. 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 traded in a narrow, choppy trading range today and ended likewise. December live cattle expired 10 cents higher at $134.50 today.

Fundamental outlook: Traders engaged in some year-end positioning today as traders looked ahead to 2014 when the cattle market is expected to see a delayed 10-year cycle high. Recent supply tightening has been cited by some as signs that ranchers are beginning to rebuild herds. Tight supplies led to record or near-record cash trade last week, and traders are optimistic even higher trade is possible this week as beef prices have improved and weather has stressed animals and slowed transportation. This morning, Choice boxed beef cuts moved back above the $200 per cwt. mark.

However, showlist estimates are up this week in most locations and packers continue to deal with negative margins. So far, just scattered sales have occurred in the Nebraska dressed market at $215, which is up $2 from the week prior. Active trade will likely occur late-week.

Technical outlook: February live cattle futures posted a weekly high, but this gave way to light profit-taking and a low-range close. Resistance stands at $136.00, which marks the top of the wide Jan. 16 gap. The August high of $132.25 marks support. The contract posted slight losses for the year.

Feeder cattle

Price action: Feeder cattle futures got off to a choppy start, but this gave way to profit-taking, and the market settled low-range with losses of 22 1/2 to 72 1/2 cents.

Fundamental outlook: Traders took advantage of the recent run-up in feeder cattle futures and mild strength in the U.S. dollar index today by booking some profits ahead of year-end. Adding profit-taking incentive is the nearly $2 premium the front-month holds to the cash index.

Technical outlook: January futures remain within a narrow consolidation range between the Dec. 18 low of $166.05 and the December high of $168.45. These levels mark near-term support and resistance, respectively.

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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