Livestock Analysis (VIP) -- June 12, 2013

June 12, 2013 09:41 AM


Price action: Lean hog futures built on yesterday's gains, finishing 2 1/2 cents to $1.00 higher. Most contracts were moderately higher and posted a high-range close.

Fundamental analysis: Futures continue to be supported by demand hopes. Talk of Chinese buying of U.S. pork continues to swirl through the market. Plus, there are expectations the purchase of Smithfield Foods by a Chinese company will have a longer-term impact on the country's demand for U.S. origin supplies. Also providing support was a slight downward revision to 2013 pork production in today's USDA Supply & Demand Report.

Although packers' profit margins are in the red, the pork cutout market is strengthening and tighter market-ready supplies are making it difficult for packers to secure needed supplies. While packers have lowered their kill requirements to limit their losses, they were still willing to bid up for hogs today. Steady to firmer cash hog bids are expected again tomorrow.

Technical analysis: Building on yesterday's gains strengthened technicals for August lean hog futures, as the contract challenged resistance at Monday's high of $97.80. Closing above this level would be technically significant as it would make bulls' next target the triple-top contract high of $100.00.

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 traded in a narrow, choppy range today and ended 17 1/2 cents lower in June and August futures and 10 to 50 cents higher in deferred contracts. This was a mid- to high-range close.

Fundamental analysis: The cattle market has chopped sideways throughout the week as the market is uncertain about cash prospects this week. While boxed beef prices have been mixed this week, movement has picked up. Movement this morning was impressive at 155 loads. But showlist estimates are slightly heavier this week. Thus, early expectations are for steady cash trade with last week's $122 action on the Southern Plains; nearby futures are around $2 below these prices.

USDA's supply and demand update today also limited buying interest, as it raised its 2013 beef production outlook by 330 million lbs., while trimming its export outlook by 100 million pounds. Therefore, USDA also lowered its average price projection for 2013 by $1 on each end of its range to $125 to $130.

Technical analysis: August live cattle futures continue to consolidate around the psychological $120.00 mark, which is near-term resistance for the contract, followed by last week's high of $120.90. Contract-low support is at $117.90.


Feeder cattle

Price action: Feeder cattle futures saw two-sided trade today, but bulls had the advantage into the close. Futures ended $1.02 1/2 to $1.27 1/2 higher and just off session highs.

Fundamental analysis: Pressure on the corn market after USDA showed it anticipates larger old- and new-crop carryover supplies than traders had anticipated lifted buying interest in feeder cattle futures. This reduces some concerns about feed supplies, though old-crop supplies are by no means ample. Weakness in the U.S. dollar index added to the bullish tone.

Technical analysis: Initial resistance for August feeder cattle futures is the May 13 high at $147.47 1/2, but the contract needs closes above the psychological $150.00 level to signal a low is in place. Support is layered from the June double-bottom low of $143.40 to the $142.50 contract low.

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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