Livestock Analysis (VIP) -- June 27, 2013

June 27, 2013 09:29 AM
 

Hogs

Price action: Lean hog futures gapped higher on the open and buying accelerated ahead of the close, helping 2013 contracts to end $1.10 to $2.02 1/2 higher. Farther deferred contracts ended 10 to 67 1/2 cents higher.

Fundamental analysis: Lean hog futures benefited from ongoing strength in the pork market today, as the pork cutout value firmed yesterday and again this morning amid solid movement. This, along with strong profit margins and a strong weekly export sales tally this morning, helped keep the cash market mostly steady, though a fewer weaker bids were seen due to reduced needs for the July Fourth-shortened week.

The move through Monday's contract high in July futures also spurred some technical buying. Plus, nearby contracts are still at a multi-dollar discount to the cash index.

Technical analysis: The market remains on watch for a market top, but July lean hogs continue to forge new highs and hover above support at the 9-day moving average, which will roughly coincide with the psychological $100.00 level tomorrow. The next level of major chart resistance on the weekly continuation chart is the April 2011 high of $104.20.

Hedgers: 50% of expected 3rd-qtr. production is hedged in Aug. lean hog futures at an average price of $97.67 1/2 and 50% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $82.12 1/2.

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

 

Live cattle

Price action: June live cattle futures settled 12 1/2 cents lower, while deferred contracts closed 35 to 77 1/2 cents higher, which was high-range in most contracts.

Fundamental analysis: Live cattle got much of their support today from chart-based buying as futures pushed through key technical levels and on late spillover from the hog market. Fundamental support came via weekly export sales, which surged to 20,000 MT for the week ended June 20. Boxed beef prices posted strong gains this morning, which also spurred buying amid ideas the product market may be nearing a low.

Cash cattle trade remains slow to develop aside from light sales in Iowa. Cash opinions remain split. The deciding factor could be the level of packer demand as they have not purchased all available supplies the past three weeks, but are buying for a holiday-shortened kill next week.

Technical analysis: August live cattle futures gapped above the 100-day Moving Average this morning, which triggered buy stops. To break the string of lower highs and confirm a short-term low, the contract must push through the May high at $124.10.
 

Feeder cattle

Price action: Feeder cattle futures closed 77 /12 to 92 1/2 cents higher, which was mid- to high-range for the day.

Fundamental analysis: Strength in live cattle and weakness in the corn market supported feeder cattle futures today. Feeder cattle continue to extend the premium they hold to the cash market, signaling traders sense corn prices are headed lower and/or that they feel the cash market will strengthen amid tight calf supplies.

Technical analysis: Today's upside gap on the daily price chart for August feeder cattle futures is another sign the contract has posted a low. But the contract must push above the last reaction high at $152.17 1/2 to confirm a 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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