Livestock Analysis (VIP) -- July 15, 2013

July 15, 2013 09:27 AM


Price action: Lean hog futures gapped higher and traded higher early amid short-covering, but slipped through the remainder of the day's trading to post a low-range close. Despite the relatively poor close, futures ended higher and left today's gap open.

Fundamental outlook: Cash hogs traded steady to lower as packer margins have dipped into the red on a decline in wholesale pork prices. The pork cut out value dropped $2.34 in morning trade and movement was on the lighter side. Traders are balancing competing concerns as summer temperatures usually mean reduced supplies but can also mean reduced consumer demand.

With the cash and product markets under pressure, buying interest in lean hog futures is limited to corrective buying.

Technical outlook: Short-covering dominated today's trade with contracts gapping higher. The gaps remained open on the close but the drive higher failed to hold early gains. The August contract took over leadership as July hogs expired at noon CT. August futures carry about a $7.50 discount to the cash hog index. The August has support at today's low of $95.30, which is the top of today's gap. There is resistance at $96.40. The December contract has support at today's low of $81.62 1/2 and resistance at $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 closed 50 to 77 1/2 cents higher, which mid-range for the day.

Fundamental outlook: Live cattle futures worked higher amid short-covering to open the week. Traders sense a short-term low in the cash and product markets should be close, though neither has indicated that yet. Until cash fundamentals signal a low, traders will be hesitant to build in too much premium.

Boxed beef trade got off to a sluggish start this morning as Choice values were 38 cents lower while Select was 14 cents higher and movement totaled only 81 loads. Until retailer buying picks up, packers aren't likely to actively bid for cash cattle.

Technical outlook: Key near-term boundaries for August live cattle lie at last week's low at $121.17 1/2 and the June high at $123.10. A breakout from this short-term consolidation range is likely to determine the direction of the next price move.

Feeder cattle

Price action: Feeder cattle finished with sharp gains. The lead-month August contract led the way with a gain of $2.52 1/2.

Fundamental outlook: The combination of strength in live cattle and pressure on corn futures ignited strong gains in feeder cattle today. Feeders sharply extended what was already a big premium to the cash index, suggesting traders feel cash feeder cattle prices are headed higher amid tight supplies and falling feed prices.

Technical outlook: August feeder cattle closed above the April 25 high of $152.17 1/2 to break the pattern of lower highs. That's further proof of a technical bottom.

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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