Livestock Analysis (VIP) -- November 13, 2013

November 13, 2013 09:01 AM




Price action: Lean hog futures gapped lower on the open and the market faced pressure throughout the day with futures settling mostly 40 to 82 1/2 cents lower. However, a number of contracts did fight their way back for a high-range close.

Fundamental analysis: Lean hog futures have sustained technical damage in recent sessions, which led to the gap-lower start. Meanwhile, hog supplies are rising seasonally, which has pressured the cash market and cash index of late. However, some locations paid up for supplies today, which is indicative of strong packer demand.

Packers are enjoying wide profit margins, which gives them incentive to keep kill lines full. Also, pork movement has surged amid weaker prices the past two days.

Technical analysis: December lean hog futures declined to within 25 cents of the October low at $85.85, but the dip spurred some short-covering and the contract ended mid-range. Resistance is at the top of today's gap at $87.07 1/2.

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 ended a choppy day of trade narrowly mixed. Nearbys ended 7 1/2 to 22 1/2 cents higher, with deferreds 7 1/2 to 30 cents lower.

Fundamental analysis: Early selling gave way to bargain buying in the live cattle pit and nearbys posted mid- to high-range closes. Another choppy day of price action is likely tomorrow as traders wait on cash cattle trade to develop.

While showlists are up slightly from last week, beef movement has been strong this week. This could force packers to raise bids, although their margins remain in the red. Beef prices have softened this week, which also lends to slightly bearish cash expectations.

Technical analysis: February live cattle briefly penetrated support at yesterday's low before buying returned to the market. The contract tested, but was unable to move above yesterday's high of $134.70. Closes above this level would make bulls' next target the October high of $135.40. Support is at the November low of $133.20.

Feeder cattle

Price action: Feeder cattle futures ended the day mixed, with nearbys 15 to 45 cents higher and deferreds down 2 1/2 to 15 cents.

Fundamental analysis: Feeder futures followed price trends in live cattle, with nearbys supported by slight weakness in the corn market. Nearby contracts are trading in line with the cash index, which is also limiting price moves.

Technical analysis: Near-term boundaries for January feeder futures is the November trading range that extends from $163.45 to $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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