Livestock Analysis (VIP) -- June 28, 2013

02:52PM Jun 28, 2013
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Price action: Lean hog futures ended the day moderately to sharply lower amid pre-report position squaring and profit-taking, but still posted gains for the week. Increased price volatility at high prices is a potential warning sign of a top.

5-day outlook: This afternoon's Quarterly Hogs & Pigs (H&P) Report is getting a neutral read. As a result, much of traders' focus next week will remain on the pork product and cash hog markets as they watch for signs of a seasonal top.

30-day outlook: The pork cutout market has been on a historic rise this summer and is showing signs of topping, as is the usual case for this time of year. While all cuts have posted strong gains, strength in pork bellies has paced the rally. BLT season will continue to drive bacon demand near-term, but as the summer bacon season ends, this could weigh on the product market.

90-day outlook: The H&P Report suggests hog marketings will be running around one percentage point above year-ago levels the reminder of summer and then trend closer to year-ago levels by fall. With a record amount of pork in storage and increased production the second half of the year, demand will have to be impressive to support prices.

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.




Price action: Live cattle futures ended 17 1/2 to 90 cents lower today, with nearbys leading losses. The June contract expired its $3.00 limit lower today at $118.15 amid light volume. The market posted slight weekly gains. Feeder cattle futures ended mostly slightly lower for the day but moderately higher for the week.

5-day outlook: Gains in the live cattle market and steady cash trade this week will like keep traders on-watch for confirmation the market has put in a near-term low. But the fact that we are entering what is historically some of the hottest weeks of the summer raises concerns about whether beef demand will perform well enough to lift the cash market.

30-day outlook: The most recent Cold Storage Report reflected tightening frozen beef supplies and better-than-expected demand. But this will need to be reflected in daily boxed beef action to break the market's downtrend since December.

90-day outlook: Drought remains entrenched in the Southern and Central Plains, which has kept cow slaughter running ahead of year-ago and has prevented producers from holding back replacement heifers, likely pushing the 10-year cycle high into 2014. Improvement of pastures in the region will be key to the start of this rally.

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.