Livestock Analysis (VIP) -- July 12, 2013

July 12, 2013 09:29 AM


Price action: Lean hog futures finished steady to slightly lower today. For the week, August hogs led price declines.

5-day outlook: The cash hog and pork product markets are signaling seasonal tops are in place and futures are rolling over. That points to more price pressure next week. But with the August contract forward at a big discount to the cash market, a round of corrective short-covering can't be ruled out.

30-day outlook: Seasonally, the cash and product markets peak as market-ready hog supplies start to build. Traders are well versed in the seasonality of the hog market and have price pressure built into fall- and winter-month contracts. But if the market shows signs of a sharp drop from current levels, be prepared to ramp up second-half hedge coverage.

90-day outlook: USDA modestly lowered its pork production forecast for the second half of this year and slightly raised its cash hog price projection for that timeframe. But hog supplies are still going to be abundant, especially with an already abundant supply of pork in storage.

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.




Price action: Live cattle futures finished mostly lower today. The October contract posted slight losses for the week, while December cattle posted slight weekly gains. Feeder cattle were mostly firmer today, but still posted losses for the week.

5-day outlook: Traders removed some of the premium nearby contracts hold to the cash market as they evened positions ahead of the weekend. With market-ready supplies tightening, traders should be comfortable with futures at a premium to the cash market. Traders will get the semi-annual Cattle Inventory Report and monthly Cattle on Feed Report next Friday.

30-day outlook: Given the ongoing drought across the Central and Southern Plains, any expansion that is revealed in the Cattle Inventory Report will likely come outside of the traditional "cattle belt." As a result, the 10-year cycle high which is spurred by heifers moving out of the slaughter mix and onto pastures, will likely be delayed until next year.

90-day outlook: In this week's Supply & Demand Report, USDA lowered its 2013 average cash steer price projection by $2 to $125.50. But it has a more bullish outlook for next year. USDA pegs the average cash price in 2014 at $131.50 due to tighter supplies.

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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