Livestock Analysis (VIP) -- December 4, 2013

December 4, 2013 08:45 AM
 

Hogs

Price action: Lean hog futures faded in early trading before buying surfaced in the February and later contracts to trim losses and leave futures narrowly mixed with an upside bias at the close. The lead-month December contract closed down $1.15.

Fundamental analysis: Record-high average slaughter weights and a seeming end to the holiday-ham demand surge brought weakness to cash hogs and pressured futures at the open. The premium held by December futures versus the cash hog index kept that contract under pressure through the day. The premium was reduced to $1.42 1/2 at the close.

February and later futures saw early losses trimmed as initial weakness failed to find follow-through selling. The wholesale pork market again showed weakness, but movement was very positive on the lower prices. This prompted traders to cover short positions.

Technical analysis: February futures probed support, which extends down to the Sept. 20 low of $87.75. Today's trip down to $88.35 is the third time prices have tested the Sept. 20 low. If support fails, the next downside target starts is the $85.00 area, which sits on top of the August 26 gap. That gap runs from $84.90 down to $84.55.

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 slightly firmer following a light and choppy day of trade. Most contracts ended high-range.

Fundamental analysis: Traders showed little interest in adding new positions today as they wait on direction from the cash cattle market. While smaller showlist numbers through the Plains suggest steady to firmer cash cattle prices are likely, packers continue to work with negative margins and have shown little urgency to actively establish bids so far this week. Despite the impending winter storm, it appears cash cattle trade will push deep into the week.

Given tight market-ready supplies, cattle traders are willing to keep nearby futures at a slight premium to the cash index. But there isn't enough confidence in higher cash cattle prices to spark active buying interest in futures.

Technical analysis: The technical picture for February live cattle futures is bullish and suggests the contract is headed for a push above the October high at $135.40. Such a move would open the upside to the contract high at $138.40.

 

Feeder cattle

Price action: Feeder cattle futures ended with slight gains after a two-sided day of trade.

Fundamental analysis: Strength in the corn market deterred buying interest in feeder cattle for most of today's session, but a late firming in live cattle and the belief that any move higher in corn is temporary supported feeders into the close. Given tight calf supplies, traders also aren't willing to let January feeder cattle futures get too far below the cash index.

Technical analysis: January feeder cattle futures look to have put in a short-term low but the contract must push above the November double-top at $166.00 to confirm that. Such a move would open the upside to the contract high at $169.22 1/2.

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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