Livestock Analysis (VIP) -- June 19, 2013

June 19, 2013 09:54 AM


Price action: July through October lean hog futures gapped higher on the open and extended gains, but these contracts closed near opening levels for a low-range close with gains of 65 cents to $1.27 1/2. The rest of the market closed 50 to 87 1/2 cents higher.

Fundamental analysis: Early support came from tightening market-ready supplies and strength in the pork cutout market, which gave traders encouragement to narrow the discount nearbys hold to the cash index. The index is projected up 59 cents to stand at $103.87 and July hogs closed at at nearly a $4 discount to the index -- signaling there is additional upside potential for this overbought market from a fundamental standpoint.

Meanwhile, the cash hog market was mostly steady today, with some packers trimming kill schedules to deal with poor cutting margins. Early expectations are for steady bids again tomorrow.

Technical analysis: July lean hog futures gapped to a monthly high and extended gains to a contract high of $101.32 1/2, which is initial resistance. But the low-range close suggests there is limited buying interest above the $100 level, although the fact the contract tested these waters is encouraging to market bulls as technicals remain bullish.

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 extended gains into the close on spillover from strength in the hog market, with futures closing 87 1/2 cents to $1.50 higher.

Fundamental analysis: On top of spillover from hog futures, cattle futures were supported by ideas recent losses were overdone, giving traders encouragement to return nearby futures in line with last week's $120 cash cattle market. While market-ready supplies remain tight and packers' profit margins are well in the black, packers have not been forced to raise bids in recent weeks due to lackluster beef demand.

Tomorrow, traders will begin to more actively even positions ahead of Friday afternoon's Cattle on Feed Report. The report is expected to show On Feed at 96.5%, Placements at 95.9% and Marketings at 97.9% of year-ago levels.

Technical analysis: August live cattle futures posted a big upside day of trade on the daily chart but the contract needs strong followthrough buying tomorrow to suggest a near-term low has been posted. Contract-low support lies at $117.90.


Feeder cattle

Price action: Feeder cattle futures closed 60 to 85 cents higher, which was a high-range close.

Fundamental analysis: Feeder futures enjoyed spillover from live cattle, although buying was limited by sharp gains in the corn market and lackluster demand for cash cattle supplies. Concerns that feed prices could rise due to the delayed planting of this year's corn crop is acting as a wet blanket for rallies.

Technical analysis: August feeder cattle futures posted an inside day of trade on the daily chart. Near-term boundaries are last week's high of $145.95 and support at the contract low of $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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