Livestock Analysis (VIP) -- June 24, 2013

June 24, 2013 09:29 AM



Price action: Hog futures initially opened lower on spillover from the general commodity selloff prompted by negative outside markets. But the market surged in late-morning trade only to ease back and close mid-range.

Fundamental analysis: The globally equity market selloff and stronger dollar triggered by the news of credit tightening out of China initially pressed futures lower. But a better-than-feared view to Friday's Cold Storage Report coupled with rising pork cutout values moved futures higher. Traders will soon turn their attention to Friday's Quarterly Hogs and Pigs Report.

Cash hog bids were mostly steady today, though there were some weaker bids. Still, nearby futures are trading at a discount to the cash market.

Technical analysis: The August contract filled the small gap left on the daily chart and surged higher before finding resistance at last week's high. The contract posted a mid-range close. The $97.00 area seems to offer support, while the $99.00 area offers resistance. The October contract found support at Friday's high and tested resistance at last week's high, which coincides with the bottom of the downside gap left in early February. The short-term uptrend line offers rising support around $84.50.

Hedgers: 25% of expected 3rd-qtr. production is hedged in Aug. lean hog futures at $97.20 and 25% of expected 4th-qtr. production is hedged in Dec. lean hog futures at $81.75.

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.



Live cattle

Price action: Live cattle futures finished 15 to 47 1/2 cents lower, which was on or near session lows.

Fundamental analysis: Cattle futures mildly favored the downside in light trade to start the week as traders factored in Friday's Cattle on Feed and Cold Storage data. While the Cattle on Feed data was slightly negative compared to the average pre-report trade guesses, it was not bearish, which limited selling pressure. Beef stocks, which came in well below the average trade guess, also limited selling interest. Based on the limited reaction to the report data, traders are going to put more near-term stock in boxed beef and cash cattle trade.

The boxed beef market got off to a sluggish start this morning amid mixed prices and limited movement. As far as the cash market outlook, traders have mixed opinions as showlist numbers are expected to be higher again this week, but packer demand may be improved after buying a limited number of cattle the past couple weeks.

Technical analysis: August live cattle futures posted a modest inside day down after Friday's strong rally. To trigger chart-based buying, the contract must push above last Friday's high at $122.00 and the last correction high at $124.10.

Feeder cattle

Price action: Feeder cattle futures closed 75 to 95 cents higher, though that was off session highs and low-range for some contracts.

Fundamental analysis: Feeder cattle futures built on last Friday's corrective gains thanks to weakness in the corn market. But a lack of buying interest in live cattle limited buying interest late, suggesting live cattle must participate for feeder cattle to extend the corrective rebound.

Technical analysis: The push above the short-term consolidation range Friday with followthrough buying today signals August feeder cattle have put in a low for now. Bulls' next hurdle is the last correction high at $152.17 1/2.

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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