Livestock Analysis (VIP) -- July 5, 2013

July 5, 2013 08:55 AM


Price action: Nearby lean hog futures enjoyed short-covering to end the week, with deferred futures favoring a weaker tone. All but the front-month contract ended the week with slight to moderate losses for the week.

5-day outlook: Pork cutout values have posted a sharp decline from last month's high and typically post a seasonal high around this time and slip into August. With plenty of pork in cold storage, retailers could easily opt to whittle down those supplies. Meanwhile, packers have seen profit margins tighten and given smaller market-ready supplies, are scaling back kill hours. These factors point to a near-term high being in place.

30-day outlook: Futures have yet to confirm a high is in place, but with the summer pork buying season winding down, traders are hesitant to add to their long positions. The latest Hogs & Pigs Report suggested marketings would be up around 1% from year-ago through the summer and taper off into the fall, which could shore up support for fall- and winter-month contracts.

90-day outlook: Last month's Hogs & Pigs Report signals producers signaled they had mild expansion plans in place. If grain futures continue to soften, those plans will likely remain in place. But if grain prices spike this summer, producers would likely hold off on expanding herds.

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.


Price action: Live cattle futures ended the day and week mixed as traders reevaluated positions.

5-day outlook: August live cattle are trading at around a $3 premium to this week's $119 cash cattle trade. With cash sources reporting only moderate cash trade this week, packers will have the upper hand in next week's negotiations unless the boxed beef market strengthens. The premium structure of futures suggests a near-term low has been posted, but to build on recent gains, the cash market must strengthen.

30-day outlook: Boxed beef prices typically soften into the end of summer after Independence Day. After moving to an all-time high in May, Choice beef values have returned below the $200-level, but still remain historically high.

90-day outlook: Tightening calf supplies have traders comfortable with nearby feeder futures trading at a sharp premium to the cash index. Ultimately, smaller calf supplies will translate into a dramatic reduction in cattle marketings. The 10-year cattle cycle high has been pushed into 2014 due to ongoing drought conditions in the Southern Plains.

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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