Livestock Analysis (VIP) -- July 11, 2013

July 11, 2013 09:59 AM
 

Hogs

Price action: July lean hog futures ended 25 cents higher, with the rest of the market down 5 to 60 cents and ending near session lows.

Fundamental analysis: July hogs were supported by the discount the contract holds to the cash index, but the rest of the pit was pressured by concerns about the cash hog market. Cash bids were mostly steady today amid varied demand, which raises expectations bids will begin to weaken as packers return their focus to ailing profit margins.

Pork cutout values were down another 86 cents this morning but movement was solid at 180.7 loads. Continued weakening in pork values has led to an erosion of market technicals.

Technical analysis: August lean hog futures posted a downside day of trade on the daily chart. Violation of support at Tuesday's high of $94.90 could trigger some sell stops as it coincides with a 38% retracement of the rally from the March low to the June high. Doing so would make the halfway point of the trading range, at $93.75, bears' next target.

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 traded in very narrow ranges with the August closing down 15 cents, October up 5 cents and December unchanged.

Fundamental analysis: The market continues to wait for direction from the cash market, which remains at a standstill with spreads as wide as $5 between bid and offers. The boxed beef market saw some stabilization for Choice prices this morning, but Select values slipped 92 cents. Movement was strong this morning, but key will be if its strong enough to force packers to raise bids for cash cattle.

Based on where August live cattle ended the day, traders look for packers to pay up for cattle this week, as the contract is trading at nearly a $3 premium to last week's $119 trade.

Technical analysis: Live cattle futures continue to coil in a tightening sideways trend. The October contract needs to take out resistance above the May high of $127.17 1/2 to open fresh upside potential. If this level is cleared, bulls' next target would be the March high of $129.55. Support begins at this week's low of $125.50.

 

Feeder cattle

Price action: Feeder cattle futures continued their sideways trend in a narrow range. They firmed on the initial slump in corn futures following release of USDA's Supply & Demand Report, and then slumped as corn futures recovered. Feeder futures closed 42 1/2 to 62 1/2 cents lower on their lows.

Fundamental analysis: Futures followed trading in feed prices today with prices slumping as new-crop corn futures rose near the end of the day's trading. August feeders still hold an $8 premium to the index but traders are comfortable with some premium due to tightening calf supplies.

Technical analysis: September feeder cattle futures gapped lower on the open, filled the gap but returned to opening levels for a low-range close.

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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