Livestock Analysis (VIP) -- July 17, 2013

July 17, 2013 09:48 AM


Price action: Lean hog futures traded in a narrow range, inside of Tuesday's trading boundaries, posting mid-range closes. The August contract finished 50 cents lower while the October and December each closed 7 1/2 cents lower and the February and April contracts closed 5 and 27 1/2 cents higher, respectively.

Fundamental outlook: Cash hogs were steady to weaker today and traders are looking for packers to continue to press prices lower to improve their cutting margins amid declines in wholesale pork prices. However, pork cutout improved today eased pressure on packer margins. And some worry excessive heat in the Midwest may restrict near-term marketings.

Traders may be reluctant to press August futures lower in the face of the $6.00-plus discount it holds to the cash hog index.

Technical outlook: The daily chart for August lean hog futures shows an improving picture with three consecutive higher lows posted since marking what may become an island bottom on Friday. Last week's low at $94.35 is key near-term support for August hogs, while the contract must close above $96.40 -- a 38% retracement of the price decline from the June high to last Friday's low -- to convince traders a low is in place.

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 posted losses of 82 1/2 cents to $1.15 for the day and ended at or near session lows.

Fundamental outlook: Ongoing declines in the boxed beef market weighed on the live cattle market today, though softer prices spurred stronger movement this morning. This could make it tough for feedlots to get higher prices for their cattle despite tighter showlists this week. Thus traders reduced the premium nearby contracts hold to last week's cash action at mostly $119 on the Southern Plains.

But the market is hesitant to push futures sharply lower as traders are on watch for a supply-driven bottom in the cash and product markets. The market expects the Cattle on Feed Report Friday to show all categories below year-ago levels, with Placements at 94.9% of year-ago.

Technical outlook: August live cattle ended near the bottom of their recent consolidated trading range, the bottom of which stands at $121.17 1/2. The June high of $123.10 marks the top of this range and thus near-term resistance.

Feeder cattle

Price action: Feeder cattle futures posted losses ranging from 95 cents to $1.57 1/2 today, with nearby contracts leading losses.

Fundamental outlook: Feeder cattle futures have benefited from strong gains in recent sessions. But today, traders took advantage of these and strength in the U.S. dollar index by booking some profits. But considering the price break this summer in corn prices and tightening supply prospects, downside risk for the market is likely limited to profit-taking, barring any sharp run-up in corn prices.

Technical outlook: August feeder cattle futures gapped lower on the open and settled low-range, which should give bears the near-term advantage. They will target the psychological $150.00 level. A rebound would have bulls eyeing yesterday's high of $152.77 1/2.

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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