Livestock Analysis (VIP) -- July 9, 2013

July 9, 2013 09:39 AM


Price action: Lean hog futures saw a choppy day of trade and ended mixed amid some bull spread unwinding, with summer-month contracts 27 1/2 to 37 1/2 cents lower and October through May futures 15 to 32 1/2 cents higher.

Fundamental analysis: Investor caution resulted in futures chopping around unchanged today. Ultimately, steady to lower cash hog bids and pork demand concerns regarding the next few weeks pressured nearby contracts to a lower close as the market is on watch for a seasonal top. The pork cutout value fell 74 cents this morning and movement was again light.

But ideas feed costs will decline substantially the latter half of the year (see "Evening Report") as well as concern about the spread of the PEDV gave bulls an edge in deferred months today.

Technical analysis: Today was a technically significant one for the August lean hog contract as it completed a 38% retracement of the March low to the June high but closed just above this level of support at $95.14. A close below that price would confirm a top is in place. In that case, bears would target the 50% retracement around $93.75.

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 spent time on both side of unchanged, but finished 17 1/2 to 70 cents higher. That was good for a upper-range close and bullish reversals for the day.

Fundamental analysis: Traders are still waiting on signs of bottoming action in the boxed beef and cash cattle markets, which is limiting buying interest, especially with futures at a premium to last week's cash trade. But given high-end closes and bullish reversals, attitudes seem to be improving. Instead of looking for reasons to sell, traders are now looking for reasons to buy.

Boxed beef trade produced mixed results this morning as Choice boxes were lower and Select cuts were firmer, while packers moved 102 loads. Meanwhile, initial cash cattle bids were established at $115 to $116 in the Plains, while asking prices are $121 to $122. Showlist supplies are lower than week-ago.

Technical analysis: Key near-term resistance for August live cattle is at the June high of $123.10. A close above through that level would open the upside to the May high at $124.10. A push through that level would confirm a low and open the door to extended price strength.


Feeder cattle

Price action: Feeder cattle futures closed 5 to 60 cents lower, though that was high-range for the day.

Fundamental analysis: Strength in the corn market weighed on feeder cattle futures today, especially given recent gains and the big premium they hold to the cash index. But selling interest was held in check and losses were trimmed by the late strength in live cattle.

Technical analysis: Monday's high at $152.00 is initial resistance, with the more critical level for bulls to clear at the April 25 high of $152.17 1/2 for the August feeder cattle contract. Clearing that level would break the extended pattern of lower highs and would suggest a low is in place.

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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