Livestock Analysis (VIP) -- July 16, 2013

July 16, 2013 09:30 AM



Price action: Lean hog futures posted gains of 30 to 80 cents, which was in the upper end of today's range but off session highs.

Fundamental outlook: Traders worked to remove some of the discount futures hold to the cash index today. That allowed futures to strengthen despite weakness in the cash market. But if price pressure on the cash market builds, traders won't be nearly as concerned with the nearly $6 discount August hogs currently hold to the cash index.

Cash hog bids were steady to $1 lower across the Midwest today as packer work to improve margins amid falling pork product prices. With market-ready supplies expected to gradually build seasonally, packers have little urgency to raise cash bids unless margins strengthen.

Technical outlook: The one-day island bottom August lean hog futures left on the daily price chart yesterday is an indication of a short-term low. There will be stronger signs of a low if the contract can close above $96.40, which represents a 38% retracement of the price decline from the June high to last Friday's low.

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 ended split after a choppy day of trade with 2013 contracts 12 1/2 to 32 1/2 cents lower and deferred months steady to 20 cents higher.

Fundamental outlook: The boxed beef market continues to sputter. Both cuts of meat softened today and movement slowed to 71 loads. This pressured nearby futures as this week's less-than-impressive product market performance could make it tough for feedlots to get steady prices for cash cattle compared to week-ago, despite tighter showlists.

But deferred contracts benefited from ideas supplies will tighten heading forward. Friday's Cattle on Feed Report is expected to remind the market of this, as traders anticipate all categories will come in well below year-ago levels, with Placements expected to be around 94.9% of year-ago levels.

Technical outlook: August live cattle futures remained well within the the market's consolidation trading range since late June, the boundaries of which are resistance at the June high of $123.10 and support at the July low of $121.17 1/2.


Feeder cattle

Price action: Feeder cattle futures saw two-sided trade today and ended high-range with gains of 2 1/2 to 27 1/2 cents in all but the front-month, which was 10 cents lower.

Fundamental outlook: Followthrough buying today despite firmer corn prices after yesterday's gap higher is a strong technical signal the market has put in a seasonal low. The market was also encouraged by recent heavy rain in the Southern Plains, which could improve pasture conditions and along with lower feed costs possibly encourage herd rebuilding.

Technical outlook: August feeder cattle futures have turned former resistance at $152.00 into support. The past two days, the contract has tested but failed to close above resistance at the bottom of the early April island at $152.70.

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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