Livestock Analysis (VIP) -- December 6, 2013

December 6, 2013 08:45 AM
 

Hogs

Advice: Exit the hedges covering 100% of 4th-qtr. production in Dec. lean hog futures. Our exit was $81.90 for a profit of $1.84 on the entire position.

Price action: Lean hog futures closed mixed today but posted losses for the week, with the December contract ending sharply below Friday's close.

5-day outlook: December lean hog futures, which expire next Friday, are now trading at a discount to the cash index, which is showing signs of putting in a seasonal low. That should limit followthrough selling pressure on the contract next week unless the cash market comes under heavy pressure. Cold and snowy conditions forecast for the Midwest should be enough to keep the cash market from plunging, especially given strong packer margins.

30-day outlook: Traders are willing to keep February lean hog futures at a premium to the cash market, as pork production should start to ease seasonally. While market-ready numbers will begin to gradually decline, kill weights could be the key. If slaughter weights remain record high, the decline in pork supplies will be modest and there would be greater urgency for traders to reduce the premium February hogs hold to the cash index.

90-day outlook: Pork demand has done a good job keeping up with the seasonal build in supplies. That's largely because pork is relatively cheap compared to beef. If pork demand remains strong, it would add support to the market once supplies start to ease. That's why we don't want to heavy up 1st-qtr. hedge coverage and will be looking to exit those hedges when the market signals a seasonal low is in place.

Hedgers: NEW ADVICE: Exit the hedges covering 100% of 4th-qtr. production in Dec. lean hog futures. Our exit was $81.90 for a profit of $1.84 on the entire position. Maintain the hedges covering 50% of 1st-qtr. marketings 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.

Cattle

Price action: Live cattle futures closed narrowly mixed with the front three contracts down 5 to 22 1/2 cents and the March and later contracts up 10 to 17 1/2 cents. However, futures closed sharply lower versus a week ago.

5-day outlook: Tight supplies will help keep cash prices steady even though packers are cutting the red. But the wholesale beef market is struggling and movement is slow, which will keep packers on the defensive.

30-day outlook: The standoff between tight supplies and struggling wholesale demand will keep prices confined in a narrow trading range. Packers continue to cut in the red. Their resolve to hold the line on pricing will increase as they face the holiday season with its normally weaker demand.

90-day outlook: An improving jobs picture gives some positive outlook to possibly improving consumer demand after the start of the new year. Cattle supplies remain tight which will help prevent any major declines in cash prices.

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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