Livestock Analysis (VIP) -- June 18, 2013

02:33PM Jun 18, 2013
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Price action: July and August lean hog futures closed 65 to 75 cents higher, which was mid-range. The October contract forward ended mixed with a slight downside bias and low-range for the day.

Fundamental analysis: Summer-month hog futures were supported by strength in the pork product market. With these contracts trading well below the cash market and cash hog bids not breaking as some anticipated, traders are also working to narrow the price spread. But the late paring of gains signals traders still sense futures may be working on a seasonal top.

Cash hog bids were steady at most locations today, though some weaker bids surfaced late-morning as packers are working to strengthen margins. But given tight market-ready supplies, packers may have little choice but to work with tight margins near-term or risk losing animals to competing plants.

Technical analysis: There's a bullish flag on the daily August lean hog futures chart. A push above the top of the flagpole at $97.80 would project the contract to the triple-top contract high at $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 were unable to follow yesterday's bullish reversals in many contracts with gains, reflecting traders' cautious attitude about extending long positions. Live cattle futures ended 7 1/2 to 32 1/2 cents lower, with nearbys generally leading losses.

Fundamental analysis: Given this week's larger showlist, traders are hesitant to extend long positions and feel comfortable with the slight discount nearbys hold to last week's $120 cash cattle trade in the Southern Plains. Traders will continue to keep an eye on the boxed beef market, as it needs to strengthen in order to encourage packers to raise bids. This morning, Choice values slipped 53 cents but Select rose $1.16 on decent movement of 104 loads.

Technical analysis: October live cattle futures initially saw followthrough buying from yesterday's bullish reversal but posted a low-range close and finished 15 cents lower to negate the possible positive technical signal. Support lies at the contract low of $121.35, with resistance at the late May high of $124.30.


Feeder cattle

Price action: Feeder cattle futures saw two-sided trade, but extended losses into the close to finish 72 1/2 cents to $1.00 lower.

Fundamental analysis: Feeder cattle futures softened as corn futures extended gains. Concerns about tight old-crop corn supplies and the varied establishment of new-crop corn have traders cautious about feeder cattle demand. Plus, August feeder cattle futures are trading at around an $8 premium to the cash index, which opens significant near-term downside risk for nearby contracts.

Technical analysis: August feeder cattle futures remain confined within the boundaries of the month-long consolidation range that extends from the contract low of $142.50 to the mid-May high of $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.