Livestock Analysis (VIP) -- November 12, 2013

November 12, 2013 08:43 AM
 

Hogs

Price action: Lean hog futures saw a mixed start to the day but ended 25 to 87 1/2 cents lower through the August 2014 contract, with nearbys leading the decline.

Fundamental analysis: Futures were vulnerable to profit-taking due to indications supplies are building seasonally. Nearbys were supported yesterday by mixed cash hog bids, but a steady to weaker tone today weighed on futures. Early expectations are for steady to weaker bids again tomorrow, which suggests packers are having no difficulty securing needs.

Adding to the weaker tone was a 40-cent drop in pork cutout values this morning, although a lofty 494.84 loads changed hands, which suggests prices are attracting demand. Traders also worked to narrow the premium nearbys hold to the cash index.

Technical analysis: December lean hog futures posted a big downside day of trade on the charts and briefly violated last week's low of $87.10. While futures closed above that level, the low-range finish will give bears the technical advantage tomorrow. Key support lies at the October low of $85.85.

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 opened slightly higher on followthrough from yesterday's gains, but buying quickly evaporated and futures ended the day 7 1/2 to 27 1/2 cents lower through the October 2014 contract. Far deferred futures ended steady to 20 cents higher.

Fundamental analysis: Early buying was met with profit-taking as traders wait on the cash market for direction. As a result, another choppy day of trade is possible again tomorrow. Pressure was limited, however, by indications this week's showlist isn't as large as feared. While numbers are up overall across the Plains, Texas feedlots have fewer market-ready supplies available this week.

Indications the recent price slide in beef values is attracting improved demand could also lead to some stability in futures and the cash market. This morning, Choice beef values slipped 22 cents, but 198 loads changed hands.

Technical analysis: February live cattle gapped slightly higher on the open, filled the gap and then violated support at yesterday's low. The contract finished mid-range to avoid posting a bearish reversal.

Feeder cattle

Price action: Feeder cattle futures ended the day mixed, with nearbys 2 1/2 to 45 cents higher and deferreds 12 1/2 to 20 cents lower.

Fundamental analysis: Price action in the feeder cattle pit was choppy and limited to position squaring. November feeder futures are trading at around a $1 discount to the cash index, which helped to lift nearby futures. Slight weakness in the corn market was also supportive for nearby futures.

Technical analysis: The January feeder cattle futures posted slight daily gains, the contract closed low-range, which raises the risk of followthrough selling tomorrow. Important support is at the November low of $163.45.

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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