Livestock Analysis (VIP) -- July 29, 2013

July 29, 2013 09:28 AM



Price action: Lean hog futures finished mixed with small gains and losses. August finished up 12 1/2 cents while the October and December contracts each closed down 30 cents. February and April futures closed up 15 and 12 1/2 cents, respectively.

Fundamental analysis: Traders continue to look ahead to the seasonal increase in hog runs and weights and seasonal downswing in cash hog prices. But the discount August hogs hold to the cash market was mildly supportive today.

Cash hogs traded mostly steady today. Supplies remain tight seasonally but weights have edged higher on the cooler temperatures. That extra weight is helping trim the negative margins faced by packers. But a slight decline in the pork cutout value coupled with below-average movement is creating a negative tone.

Technical analysis: August hog futures traded slightly higher in a narrow range inside of Friday's trading range. The July 23 gap remains unfilled, although Friday's downswing probed into the gap. Friday's low of $97.57 1/2 provides support while resistance starts at $99.55 and extends to the triple-top contract high at $100.00.

October futures slumped further after dropping through the July 23 low and filled the July 15 gap area. The $83.50 area provides support while resistance starts at $86.87 1/2.

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.



Live cattle

Price action: Live cattle futures closed 5 to 30 cents higher today, though that was on or near session lows.

Fundamental analysis: Cattle futures were supported today by a firmer tone in the Nebraska cash cattle market late Friday. That gives traders some hope the cash market has put in a seasonal low and firmer prices will be seen this week. But some of their enthusiasm was curbed by an uninspiring performance in the boxed beef market this morning as prices were lower and movement was light. If the product market continues to struggle, packers will be reluctant to get too aggressive with cash cattle bids.

Initial showlist projections are higher than week-ago, especially in Nebraska. That could also limit packers' willingness to raise cash cattle bids.

Technical analysis: August live cattle futures continue to hold within the short-term consolidation range, marked by support at last week's low of $120.90 and resistance at the June high of $123.10. A breakout from this range is likely to trigger the next trending move.

Feeder cattle

Price action: Feeder cattle futures finished 67 1/2 to 97 1/2 cents higher, which was low-range for the day.

Fundamental analysis: Strength in live cattle and weakness in the corn market supported feeder cattle futures today. A late paring of gains in live cattle and a trimming of losses in corn pulled feeders near session lows on the close. But expectations fed cattle prices are headed higher and feed prices are headed lower is supportive, especially given tight calf supplies.

Technical analysis: Resistance for August feeder cattle stands at last week's high of $154.15 and then the April high at $154.40. Key near-term support is at the July 12 low at $149.90.

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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