Livestock Analysis (VIP) -- July 10, 2013

July 10, 2013 09:59 AM


Price action: Lean hog futures ended 35 cents to $1.07 1/2 higher, with nearbys leading gains. While the lead-month contract posted a high-range close, with August and October posting low-range closes.

Fundamental analysis: Futures rallied today in the face of mostly negative news. The pork cutout market continued to post losses today with a decline of $2.41 in morning trade. Movement was a favorable 238.7 loads, however. Cash prices were steady to weaker amid varied demand, with most packers scaling back kill requirements due to tightening profit margins.

Technical analysis: Short-covering was the dominate feature today as August futures continued to find support from filling the June 10 and $95.14 which coincides with the 38% retracement from the March low to June high. However, the contract failed to hold its gains as it probed resistance at $96.50, slumping to fill the opening gap and closing near the day's lows.

October and later contracts gapped higher and held most of their gains, although October hogs posted a low-range close. leaving their gaps open. Support for December hogs lies at $81.50, the bottom of today's gap, with resistance at today's high of $82.25.

Hedgers: 50% of expected 3rd-qtr. production is hedged in Aug. lean hog futures at an average price of $97.67 1/2 and 50% of expected 4th-qtr. Production is hedged in Dec. lean hog futures at an average price of $82.12 1/2.

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.

Live cattle

Price action: Live cattle futures were under light pressure for the day and ended steady to 65 cents lower, with nearbys leading losses.

Fundamental analysis: Futures saw light profit-taking pressure following yesterday's gains, as traders evened positions as they wait on cash cattle trade to begin. This week's showlist is tighter than last week, but so far the boxed beef market has not yet confirmed a near-term low has been posted. Cash trade will likely be delayed until later in the week as bid and asking prices remain at least $5 apart.

Technical analysis: The inability to follow yesterday's bullish reversals with gains is disappointing to market bulls, although no technical chart damage was done today. Key will be if futures can post a high-range close for the week, as it would be an indicator bulls still have the upper hand. Closes above the May high of $127.17 1/2 would make bulls next target for the October contract the late March high of $129.55.


Feeder cattle

Price action: Feeder cattle futures ended 17 1/2 to 72 1/2 cents lower, with pressure coming from spillover from live cattle.

Fundamental analysis: Feeder cattle futures were under pressure throughout the day as traders worked to narrow the sharp premium contracts hold to the cash index. There is significant near-term downside risk for nearby contracts as August feeders hold around an $8 premium to the index. But attitudes are the cash market will continue to reflect a tightening supply of calves.

Technical analysis: August feeder cattle futures posted an inside day of trade on the daily chart. The low-range close gives bears the upper hand heading into tomorrow's open, but bulls still have momentum on their side as the overall trend remains up.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.

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