Livestock Analysis (VIP) -- July 25, 2013

July 25, 2013 10:26 AM



Price action: Lean hog futures opened higher, some contracts even gapping higher, but failed to hold the gains and slumped to close near the day's lows. The August through April contracts finished 35 cents to $1 lower.

Fundamental analysis: After recent gains, lean hog futures ran into some profit-taking today. But futures backed off session lows into the close, suggesting traders are now in a wait-and-see mode as they gauge cash market fundamentals.

Cash hogs were mostly steady today as packers, facing negative margins, were reluctant to push aggressively to gain supplies. The pork cutout value rebounded from Wednesday, and movement was moderate. Traders expect slaughter supplies will start to rise seasonally soon and wholesale pork values to weaken as a result.

USDA reported weekly pork export sales totaled a light 6,800 MT, but that was an improvement from a week ago.

Technical analysis: August lean hog futures tested resistance at the June high at $99.65 and slipped back, posting a low-range close and taking out yesterday's low. However, the slump did not probe Monday's gap area, which begins at $98.25. The longer this gap remains open, the higher the odds traders will view the gap as a measuring gap projecting higher prices. A slump down through the gap would tend to confirm a top has been posted.

Hedgers: 3rd-qtr. hedges have been exited. 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 traded moderately lower but firmed at the close to post high-range closes. Futures finished mixed with the August contract up 7 1/2 cents, October down 17 1/2 cents and December up 5 cents. February and later contracts closed 5 to 50 cents lower.

Fundamental analysis: The cash market saw some sales occur in the Texas market at $1.19, matching price levels of a week earlier and prices paid in Kansas yesterday. Around 10,000 to 12,000 head reportedly moved in Kansas Wednesday and 1,000 to 2,000 head moved in Texas. The wholesale beef market saw Choice beef rise $1.03 and Select gain 63 cents in morning trading. Movement is a moderate 101 loads. These increases paired with yesterday's gains may signal the boxed beef market is working on seasonal low.

USDA reported weekly export sales tallied 14,900 MT, down slightly from week-ago, but still relatively strong.

Technical analysis: Live cattle futures initially broke through the bottom side of the three-week long sideways trading range. But prices quickly surged as the break failed to trigger sell stops. Futures closed high-range and back in the sideways trading range. This makes the $123.10 is support for October futures. Support is at $120.90 for the August contract. August has resistance at the $123.10 area while October has resistance at $126.95.


Feeder cattle

Price action: Feeder cattle futures traded lower through the day and closed mid-range. Futures were 35 to 67 1/2 cents lower.

Fundamental analysis: Traders shrugged off the declines in grain futures today. Instead, traders looked at the approximate $6.50 premium the August contract holds to the cash index as a reason to press futures lower. The September contract holds an even larger premium but traders expect feeder cattle supplies to tighten going forward.

Technical analysis:August futures rebounded off a test of support at $152.17 1/2. The test, if it holds may trace out a slightly more sustainable uptrend line moving into late summer. There is resistance at the April high of $154.40.

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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