Livestock Analysis (VIP) -- July 18, 2013

July 18, 2013 09:56 AM


Price action: Lean hog futures traded mixed through much of the day with the August contract firmer and deferred months lower. However, both the October and December contracts firmed at the close to post small gains of 35 cents and 12 1/4 cents, respectively. August futures finished 82 1/2 cents higher. February closed unchanged and April and later contracts closed slightly weaker. All contracts closed near their highs.

Fundamental outlook: Trader attitudes toward deferred contracts are negative as they expect pork supplies to rise seasonally and packers face negative margins due to weakness in the wholesale pork market. USDA indicated wholesale pork prices slipped further this morning. In addition, traders expect Monday's Cold Storage Report will show increased supplies versus a year earlier and the five-year average.

However, traders are reluctant to press August futures lower as they remain at a discount to the cash index. Today's action narrowed to the discount to slightly more than $5.

Technical outlook: The charts continue to trace a mildly positive picture by leaving the small island bottom posted Monday unchallenged and edging higher. Today's close above $96.40 in the August contract marks a 38% retracement of the decline from the June high to last Friday's low adds to that positive picture. Next level of resistance is at $97.80. Last week's low at $94.35 continues to provide support.

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 gained momentum after opening about even with yesterday's close. Futures traded higher and eased back to post midrange closes. Futures finished 70 cents to $1.22 1/2 higher.

Fundamental outlook: Traders are evening positions ahead of Friday's Cattle on Feed Report which they expect will show decreases in numbers on hand. Looking beyond tomorrow's report, some traders are starting to look at a seasonal upturn in beef demand this fall coming as supplies continue to tighten. Wholesale beef prices firmed this morning but movement was light.

Technical outlook: The August contract has support at recent lows in the the $121.20 area while resistance resides at the June high of of $123.10. These areas define the three-week long sideways trading range.


Feeder cattle

Price action: Feeder cattle futures closed 65 cents to $1.10 higher, but near session lows. The front two months saw the strongest gains.

Fundamental outlook: Firmer live cattle futures and weaker corn and soybean futures lifted feeder cattle contracts. Traders are looking ahead to Friday's Cattle on Feed Report anticipating further confirmation of tightening feedlot supplies. As corn moved off its lows into the close, feeders backed off their highs.

Technical outlook: Futures continue to trade in a narrow range. Prices found support early this morning, shrugging off the bearish close posted Wednesday. The $150.00 area offers support on the August chart while $152.77 1/2 provides resistance.

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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