Livestock Analysis (VIP) -- November 18, 2013

November 18, 2013 08:33 AM


Price action: Lean hog futures ended steady to 37 1/2 cents lower for the day after a mixed day of trade. Most contracts ended midrange.

Fundamentals analysis: Ideas the downside was overdone last week along with weakness in the U.S. dollar index encouraged short-covering at times today. But in the end, bears had the advantage as hog supplies are on the rise, keeping the cash hog market steady to lower today despite wide packer profit margins. The December contract is at nearly a $2 premium to the cash hog index, adding pressure.

On the other hand, a $1.32 jump in the pork cutout value and solid movement of 210.91 loads this morning helped limit the market's downside. The hog market has proven resilient in recent weeks.

Technical analysis: December lean hogs matched last week's low of $85.25 today, marking this level as tough support. Bulls' initial target is the top of the Nov. 13 downside gap around $87.07 1/2, which roughly coincides with the Nov. 7 low.

Hedgers: 100% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $83.74; 50% of 1st-qtr. marketings are hedged in Feb. lean hog futures at $89.70.

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 fell in late trade to close $1.05 to $1.60. Nearby contracts lead the decline and futures ended low-range for the day.

Fundamentals analysis: Fund liquidation amid technical-related selling sent cattle futures lower today. December live cattle declined to trade in line with last week's $1 higher cash cattle trade that occurred at $132 in the Southern Plains on Friday. adding to weakness was a softer tone in Choice beef values this morning on slowed movement of 75 loads.. Slaughter today is estimated at 119,000 head, up from 109,000 head last week and down from 128,000 a year ago.

Technical analysis: The decline in December futures resulted in violation of short-term uptrending support, which triggered sell stops. December has support at the October-November lows from $131.40 to $131.55 with further support from the long-term uptrend at $130.80. Resistance is at Friday's high of $133.50.


Feeder Cattle

Price action: Feeder cattle futures closed slightly to moderately lower with January futures leading declines with a loss of $1.52 1/2. Deferred contracts closed 67 1/2 to 95 cents lower and closed low range.

Fundamentals analysis: Feeder cattle futures fell on the weakness in the live cattle futures and inability to penetrate resistance at $166.00. Futures gained some support for the declines in corn futures but the late-session selloff in live cattle futures erased gains and pressed futures into the negative.

Technical analysis: January futures sold off after testing resistance at $166.00. This was the fourth failure on an attempt to press through $166.00. The contract has support at $164.00 down to 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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