Livestock Analysis (VIP) -- June 17, 2013

June 17, 2013 09:22 AM


Price action: Lean hog futures ended mixed, with July and August contracts down 7 1/2 and 10 cents, respectively. The rest of the market ended steady to 50 cents higher.

Fundamental analysis: Futures saw two-sided trade today, with selling limited by sharp strength in the pork cutout market last Friday which lifted packers' profit margins back into the black. But buying was limited as technicals hint near-term highs are in place.

The pork cutout value was another 68 cents higher this morning on solid movement. But after a steady to firmer start, the cash hog market drifted lower as many plants have once again trimmed their kill schedules to accommodate tighter market-ready supplies. Early expectations are for mostly steady cash hog bids tomorrow.

Technical analysis: August lean hog futures saw trade above resistance at Friday's high but closed low-range to remain within the boundaries of last week's trading range. Futures need to move above resistance at last week's high of $97.80 to signal the market has at least another push to the upside left in it. Support begins at the 25% retracement of the rally from the March low to last week's high at $95.32 and extends to the bottom of the June 5 gap area of $94.05, which also aligns with a 38% retracement of the rally.

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 ended 62 1/2 to 92 1/2 cents higher through the April 2014 contract, which was a high-range close for most contracts.

Fundamental analysis: Live cattle futures were boosted by corrective buying today amid ideas the downside has been overdone. Funds were also buyers today, an indication they may feel a short-term low is in place. But at least a couple days of solid buying interest is needed to signal a low is in the works.

Fundamentally, traders still have demand concerns. But strength in Choice boxed beef prices this morning potentially suggests the market is in the process of putting in a short-term low.

Technical analysis: August live cattle futures bounced after matching last Friday's low at $118.05. Contract-low support lies just below that level at $117.90. To signal an extended corrective rebound is underway, the contract must close above the June 4 high at $120.90.


Feeder cattle

Price action: Feeder cattle futures closed 47 1/2 cents to $1.12 1/2 cents higher through the January contract, which was on or near session highs.

Fundamental analysis: Feeder cattle futures were choppy through much of today's session as strength in corn countered the firmer tone in live cattle. But a strong close in the fat cattle market allowed traders to look past the strength in corn as they covered short positions.

Technical analysis: August feeder cattle futures continue to consolidate just above the contract high of $142.50. The top of the short-term consolidation range is at $146.70.

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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