Livestock Analysis (VIP) -- July 26, 2013

July 26, 2013 09:27 AM


Price action: Lean hog futures were on the defensive most of the day, ending down 45 cents to $1.17 1/2 in low-range closes.

5-day outlook: Pork cutout values continue to decline which will make packers, who are operating under negative margins, even less anxious to bid up for hogs. Numbers will be building seasonally, removing urgency on the part of packers to bid up for supplies.

30-day outlook: Cash hog and wholesale pork prices normally decline into fall as supplies increase while pork demand typically suffers in late summer. Further weakness on wholesale prices would widen the negative margins already being experienced by packers. Don't look for packers to become aggressive until the wholesale pork market puts in a low and prices begin to rebound. That typically does not happen until later in the fall.

90-day outlook: The positive chart patterns traced out recently are fading quickly. Only the August contract still shows the upside gap left after the surprising Cold Storage Report. And Friday's action saw half of the gap being filled. Continuing weakness in wholesale pork prices will likely lead to lower cash hog prices and a filling of that gap, negating its bullish implications. Cash hog and futures prices normally decline into year-end and current supplies suggest that seasonal pattern will occur again this year. In addition, the decline in corn and soybean meal futures means lower feed costs, which imply an increase in hog numbers as a result. That will bring pressure to the later-deferred contracts.

Hedgers: 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.




Price action: Live cattle futures traded slightly to moderately higher through the day, slumping somewhat into the close to end mid- to low-range. Futures finished 10 to 35 cents higher. Feeder cattle futures traded in a narrow range and finished 25 to 75 cents higher.

5-day outlook: The cash market is stabilizing with the bulk of the trade in the Southern Plains at steady $119 prices, while Nebraska cash cattle traded slightly firmer. After declining for much of July, wholesale beef prices rebounded somewhat this week and movement was moderate. The leveling out in boxed beef, if it holds, will support cash prices through the week ahead and possibly build buying interest in futures.

30-day outlook: Traders are looking for a seasonal low as demand normally picks up as families return to more traditional eating patterns with the start of the new school year. Cattle supplies continue to tighten and if cow-calf operators begin holding back heifers to build the cow herd on improving pasture conditions in some areas of the Midwest and Northern Plains, market-ready supplies will tighten further. This will mean tighter feeder cattle supplies as well.

90-day outlook:Cattle supplies will continue to tighten, providing a lift to cash prices in general. Supplies will tighten further if pasture and range conditions in the Southern Plains and West improve and more operators there withhold heifers to rebuild the herd. Consumer demand and the export market will be tested even further when herd rebuilding expands into currently dry areas of the country as beef prices will rise.

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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