Livestock Analysis (VIP) -- June 11, 2013

June 11, 2013 09:50 AM



Price action: Lean hog futures again gapped higher on the open and enjoyed gains throughout the session, though most contracts ended low-range for the day. June through August futures ended 65 cents to $1.25 higher, while farther deferred months were steady to a dime higher.

Fundamental analysis: Lean hog futures again benefited from yesterday's rumors China was buying U.S. pork that, in turn, spurred technical buying as the June contract moved above the $100.00 mark, with July just below this psychological level. Fundamental support also stemmed from tightening market-ready supplies that have kept cash hog bids steady to higher.

But gains in the cash market have surpassed those of the pork market, keeping packer cutting margins in red. This is encouraging some plants to reduce kill hours. This, the low-range close and the fact that nearby contracts are technically overbought could lead to profit-taking.

Technical analysis: July lean hogs gapped higher on the open and surged to within a dime of the psychological $100.00 level. But intra-day action closed the opening gap and the contract ended low-range and just below yesterday's high. Today's high of $99.90 is near-term resistance and support is at yesterday's gap from $96.30 to $97.27 1/2.

Hedgers: Carry all risk in the cash market for now.

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 90 cents to $1.27 1/2 higher through the June 2014 contract, which was high-range but off session highs.

Fundamental analysis: Continued strength in the hog market sparked some life in live cattle futures today, though gains were purely corrective in nature as traders covered short positions. Given traders' willingness to keep futures well below the cash market for an extended period, it won't be easy to spark active followthrough buying despite the high-range close.

Cash cattle negotiations have yet to get underway in the Plains as packers have not yet established initial bids. While wire reports suggest some feedlots are encouraged by today's strength in futures, odds aren't great packers will pay up for cash cattle this week as showlist numbers are up from week-ago. But packers are working with positive margins.

Technical analysis: August live cattle futures continue to consolidate around the recent lows while holding in the long-term downtrend. Last week's high at $120.90 is key near-term resistance. The contract low at $117.90 is key support.


Feeder cattle

Price action: Feeder cattle futures finished $1.05 to $1.40 higher through the January contract, which was high-range.

Fundamental analysis: Feeder cattle futures followed live cattle higher and ignored strength in the corn market. The bulk of the buying was corrective short-covering.

Technical analysis: August feeder cattle continue to hold just above contract-low support while remaining in the longer-term downtrend. Key near-term resistance is around the $147.00 to $148.00 area, while contract-low support is at $142.50.

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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