Livestock Analysis (VIP) -- December 3, 2013

December 3, 2013 08:43 AM


Price action: Lean hog futures extended losses into the close to finish $1-plus lower through the April contract. Deferred futures ended mostly in the range of 70 to 90 cents lower.

Fundamental analysis: Traders worked to narrow the premium nearby futures hold to the cash index, which is projected at $82.25. The December contract still holds more than a $2.50 premium to the index, which opens the door to followthrough pressure tomorrow. The contract has the responsibility of moving in line with the cash index by next week's last trading day.

Meanwhile, the cash hog market was mostly steady today, with a few higher bids as packers work to fill kill lines after recent holiday interruptions. Early expectations are for mostly steady bids again tomorrow, as most packers say they are having no difficulty securing needed supplies.

Technical analysis: February lean hog futures posted a big downside day of trade on the daily chart and violated support at the November low of $89.55. Followthrough pressure tomorrow would signal bears clearly have near-term momentum on their side and make their next downside target the mid-September low of $87.75.

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 got off to a mixed start, but selling picked up as the day progressed. The December contract finished low-range with losses of 72 1/2 cents while deferred months closed steady to 50 cents lower, which was generally a mid-range close.

Fundamental analysis: Traders booked some profits in the live cattle market today as they worked to narrow the premium futures hold to last week's cash trade at $132 on the Southern Plains. This week's cash prospects are quite uncertain. On one hand, the boxed beef market has delivered a varied performance this week and packers continue to deal with negative cutting margins. But on the other hand, showlist estimates are down significantly this week and packers' cutting margins (while negative) are the best they have been in a long time.

While yesterday's gains in boxed beef prices slowed movement to a pitiful 65 loads, today's slight pullback in prices spurred solid morning movement of 99 loads.

Technical analysis: February live cattle futures continue to respect psychological support at $134.00. A move through this level would open up downside risk to the Nov. 1 low of $133.20. Initial resistance is layered from last week's high of $134.70 to the November high of $134.90.


Feeder cattle

Price action: Feeder cattle futures favored the upside on the open, but this gave way to profit-taking. Futures ended low-range with losses of 32 1/2 to 50 cents.

Fundamental analysis: Feeder cattle futures initially benefited from weakness in the corn market, but as corn turned higher, buying interest in feeder cattle futures dried up. Spillover from the live cattle market added to the negative tone. But the $1 discount the January contract holds to the feeder cattle index kept selling pressure in check.

Technical analysis: January feeder cattle futures tested but failed to close the Nov. 27 gap area, the bottom of which at $163.20 marks support. The November double-top high of $166.00 represents tough 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: 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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