Livestock Analysis (VIP) -- November 11, 2013

November 11, 2013 08:32 AM



Price action: Lean hog futures ended 15 to 37 1/2 cents higher in all but the December contract, which closed 7 1/2 cents lower.

Fundamental analysis: Hog futures enjoyed spillover from live cattle, as well as a better-than-expected start to the week in the cash market. Cash bids were mixed, with some locations in need of additional supplies to start the week. While market-ready supplies are gradually rising seasonally, packers' profit margins are well in the black, keeping demand strong for cash supplies.

December lean hog futures are trading at around a $2 premium to the cash index, which kept the contract under light pressure throughout the day.

Technical analysis: February lean hog futures posted an inside day of trade on the daily chart. Near-term boundaries are support at last week's low of $90.45 and resistance is at the $93.00 level.

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

Feed needs: 25% of 4th-qtr. protein needs are covered in long Dec. meal futures at $422.20 and 25% of 1st-qtr. needs are covered in long March meal futures at $410.80.


Live cattle

Price action: Live cattle futures gapped higher on the open and enjoyed slight gains for most of the day. Futures settled high-range with gains of 35 to 67 1/2 cents.

Fundamental analysis: Attitudes toward cash prospects are bullish to start the week as traders extended the premium nearby contracts already hold to last week's cash cattle action around $131. While boxed beef prices have pulled back in recent days, prices remain historically strong.

Also, supplies are expected to continue to tighten in the year-ahead. USDA on Friday lowered its beef production forecast for 2014. This week, however, showlist estimates are up around 3,000 head from the week prior. This helped temper bullish enthusiasm.

Technical analysis: December cattle futures gapped higher on the open, traded down to the bottom of the gap at $132.50 -- marking it as support -- and then rebounded for a high-range close. The next level of resistance is the $133.00 area, which is roughly the midpoint of the October to November decline.

Feeder cattle

Price action: Feeder cattle futures closed steady to 25 cents lower today after a thinly traded session.

Fundamental analysis: Strength in the corn market encouraged some followthrough selling in feeder cattle futures. But recognition of tight calf supplies, a weaker U.S. dollar index and the discount nearby futures hold to the cash cattle index helped limit selling interest.

Technical analysis: January feeder cattle futures appear headed for a test of the November low at $163.45. But a rebound would have bulls eying last week's high of $166.00.

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: 25% of 4th-qtr. protein needs are covered in long Dec. meal futures at $422.20 and 25% of 1st-qtr. needs are covered in long March meal futures at $410.80.

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