Livestock Analysis (VIP) -- July 30, 2013

July 30, 2013 09:45 AM


Price action: Lean hog futures gapped lower on the open and nearby contracts faced heavy pressure most of the day. But the market backed off its earlier losses into the close to finish 85 cents to $1.30 lower through the April contract, with far-deferred months mixed.

Fundamental analysis: The lean hog market appears to have put in a top as traders gear up a seasonal building of supplies. Packers paid steady to lower prices for market-ready hogs today amid limited demand as some plants have reduced kill hours.

Technical selling added to the negative tone. In recent sessions, the October contract penetrated support at both the 200- and 50-day Moving Averages and both the October and December contracts violated their early July lows today.

Traders are ignoring recent improvement in the product market. This along with lower cash hog bids have pulled packer profit margins back into the black.

Technical analysis: After posting a double-top on the daily chart last week, August lean hog futures gapped lower today. This opens downside risk to the July 12 spike low at $94.35. Resistance is at last week's low of $97.57 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 traded slightly lower in quiet trade, finishing 15 to 45 cents lower in the August through June 2014 contracts with August leading the decline. Most contracts closed midrange.

Fundamental analysis: The cattle market continued its sideways trend as traders waited on direction from the cash market. Traders continue to look for a seasonal low in cash cattle prices, but confirmation of that low is lacking, so far. With cash prices stabilized at $119 in the Southern Plains and $120.50 to $122.00 in northern locations, traders reduced the small premium that exists between August futures and the cash market.

Traders continue to look for a seasonal low in dressed beef, but confirmation of that low is also lacking. There has been some uptick in Choice beef prices lately but movement continues to be disappointing.

Technical analysis: Live cattle futures remain confined in the narrow trading range that has existed since late June. The August contract has support at $120.90 and resistance at $123.10, while the October contract has support at $124.52 1/2 and resistance around $127.00.

Feeder cattle

Price action: Feeder cattle futures followed the quietly weaker trade in live cattle futures and short-covering strength in corn futures to close fractionally weaker with the exception of the January contract, which finished $1.07 1/2 lower.

Fundamental analysis: Feeder cattle futures continue to be supported by expectations of declining supplies, but that is old news. Declining live cattle futures acted as a depressant on prices as did the slight gains in corn futures.

Technical analysis: Futures are moving into a sideways trend after their run-up from mid-June to late July. August futures have resistance around $154.00 and support at $152.00. October futures continue to trend higher, with resistance near $159.00 and support at $157.00.

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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