Livestock Analysis (VIP) -- December 9, 2013

December 9, 2013 08:58 AM


Price action: Lean hog futures generally strengthened as the day progressed and finished 75 cents to $1.02 1/2 higher in all but the soon-to-expire December contract; the front-month ended 30 cents lower.

Fundamental analysis: Most lean hog contracts benefited from corrective short-covering amid ideas the downside was overdone last week and following Friday's high-range close. The exception to this was the December contract, which traders are keeping at a slight discount to the cash hog index ahead of its expiration Friday. Concerns about frigid temps stressing animals and icy roads disrupting hog transportation also gave the market a lift. Cash hog bids were mixed today amid variable demand.

And while the pork cutout value softened 46 cents this morning, it did encourage a pickup in movement.

Technical analysis: February lean hogs erased much of last week's losses today, but the contract was unable to close back above the psychologically significant $90.00 mark, leaving that level as near-term resistance, followed by the late November high of $91.40. Friday's low of $87.90 marks tough support.

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 were supported throughout the day by concerns about frigid conditions across the Plains and ended 17 1/2 to 62 1/2 cents higher.

Fundamental analysis: Winter weather is stressing feedlot conditions, which supported futures today. Additional support came from strength in the beef market, as Choice values were up $1.31 and Select was up $1.37 on moderate morning movement of 74 loads.

This week's cattle showlist is up significantly in Nebraska, but down in Kansas and up marginally in Colorado and Texas. Feedlots have less bargaining power after holding some supplies over last week. But winter weather across the Plains could make it more difficult for packers to secure supplies and support cash bids.

Technical analysis: February live cattle saw trade above Friday's high to mark a daily high of $133.30. But the mid-range close provides little direction for tomorrow's price action. Slight gains signal the downside correction may have run its course, although it will be key for futures to continue within the boundaries of the uptrending channel to avoid doing any chart damage.


Feeder cattle

Price action: Feeder cattle futures were supported throughout the day by spillover from live cattle and tight calf supplies to end 67 1/2 to 82 1/2 cents higher.

Fundamental analysis: January feeder futures are trading in line with the cash index, which is at $165.79. The overall tightness of calf supplies continues to limit downside risk in feeder futures. Support in live cattle futures also provided spillover to feeder futures today.

Technical analysis: January feeder futures gapped higher on the open and posted a narrowly traded session. Near-term boundaries are resistance at the November high of $166.00, with support at the November low of $162.05.

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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