Livestock Analysis (VIP) -- July 2, 2013

July 2, 2013 09:29 AM


Price action: Lean hog futures closed slightly lower through the April 2014 contract, though that was in the upper half of today's trading range.

Fundamental analysis: Attitudes seem to be shifting in the hog market as traders are anticipating a seasonal market top. As a result, buying interest is becoming harder to stir up while selling interest is a little more prevalent. Still, traders aren't willing to actively sell hog futures as the cash and product markets are not showing signs of sharply faltering.

Cash hog bids were mostly steady today as packers are working with strong margins and market-ready supplies are tight. The cash market should avoid a sharp downturn until supplies become more readily available, but the CME lean hog index has softened for six consecutive days and is projected lower again Wednesday.

Technical analysis: August lean hog futures have retraced more than 25% of the rally from the March low to the June high. A 38% retracement of that rally is around $95.15. From the May low to the June high, a 38% retracement is around $95.51. Those are key near-term support levels as more than a 38% retracement would signal the pullback is more than a simple correction in a bull market.

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 opened slightly higher on light followthrough from yesterday's gains, but then profit-taking surfaced and resulted in daily losses of 12 1/2 to 35 cents.

Fundamental analysis: Price action was choppy today as traders wait on the cash cattle market for direction. Expectations are for at least steady cash bids with last week's mostly $120 trade in the Plains given this week's smaller showlist, but packer demand may be light until after they assess post-holiday needs. Boxed beef prices were firmer this morning, but movement needs to pick up in order to improve packer demand.

Technical analysis: August live cattle futures dipped below support at yesterday's low and closed right on it at $121.90. Violation of support at the early June high of $120.90 would be a warning sign the price recovery from the June low may be running out of momentum.


Feeder cattle

Price action: Feeder cattle futures ended narrowly mixed.

Fundamental analysis: Following yesterday's gains, feeder cattle traders took a step back to reevaluate positions. A firmer tone in the corn market encouraged this. Traders are comfortable with the large premium nearby contracts hold to the cash index due to tight calf supplies.

Technical analysis: August feeder cattle futures gapped slightly higher on the open but quickly filled the gap and posted a low-range close. But the uptrend from the spring low remains intact.

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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