Livestock Analysis (VIP) -- July 8, 2013

July 8, 2013 09:25 AM
 

Hogs

Price action: Lean hog futures opened mixed but quickly weakened, triggering sell stops that resulted in selling into the close. Nearbys led losses, with 2013 futures ending $1.10 to $2.20 lower and 2014 contracts posted 20- to 65-cent losses.

Fundamental analysis: Selling in the early going was limited by expectations packers were in need of additional supplies after last week's holiday shortened kill schedule. But packers came in with steady to weaker bids, as their focus has turned to improving profit margins. Additional pressure came midday on signals weekend pork clearance was not as strong as hoped. Pork cutout values slipped 84 cents and just 128.2 loads of cuts changed hands. As a result, expectations are for steady to weaker bids again tomorrow as packers' margins have tightened considerably.

Technical analysis: Today's low-range close strongly suggests a near-term high has been posted. To confirm a low, the August contract must complete a 38% retracement of the rally from the March low to last month's high. That support lies near $95.13 and closely corresponds with the bottom of the June 7 gap area.

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 closed slightly to modestly higher with the exception of the October contract which closed 7 1/2 cents lower. Contracts posted low-range closes.

Fundamental analysis: Live cattle futures marked time waiting for more solid indications of cash trade and signs of consumer demand following the July Fourth holiday. However, morning trade showed dressed beef prices slipped and movement was light. Traders are also concerned feedlots are beginning to back up after just light cash trade at $119 was reported last week -- $1 below the previous week.

Technical analysis: August futures continue to trend sideways in a tight band bracketed by $123 on the upside and $121.50 on the downside. The sideways trend has broken the short-term uptrend line. August needs a close above the May high of $124.10 to signal bulls have the clear near-term advantage.

 

Feeder cattle

Price action: Feeder cattle futures ended mixed. August through October futures ended 2 1/2 to 20 cents lower, with November steady and January up 10 cents.

Fundamental analysis: Buying in feeder cattle was limited by strength in the corn market, although the market is due for a price pullback given the sharp premium nearby feeder futures hold to the cash index.

Technical analysis: August feeder cattle futures are trading right on the steep, short-term uptrend line. Traders are looking at the unfilled gap area from $152.20 to $152.75 as an upside target as the next area of resistance.

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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