Livestock Analysis (VIP) -- November 19, 2013

November 19, 2013 09:17 AM


Price action: Lean hog futures closed narrowly mixed in thin trading with December futures finishing down 17 1/2 cents and closing mid-range. Other contracts closed 33 cents lower to 45 cents higher.

Fundamentals analysis: December hog futures edged lower as the cash index slipped 66 cents. The December contract holds about a $1.75 premium to the cash index, which limits buying interest in that contract, especially with the cash index trending lower.

The pork cutout market reported a decline in early morning trading, which brought some selling interest in December futures. However, movement was positive on the lower prices. Supplies continue to edge higher with today's slaughter pegged at 438,000 head compared to 433,000 a year ago.

Technical analysis: December futures drifted lower today, finding support at $85.10 and exactly filling the 25-cent gap left Sept. 4. The slight bounce after filling the gap makes that price an initial support area. The next downside target is the Aug. 14 high of $84.72 1/2 followed by the small 20-cent gap under $82.50 marked Aug. 26. Resistance starts at the $87.00 area.

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 gapped lower and extended losses, finishing moderately to sharply lower on the day.

Fundamentals analysis: Technical-based selling and demand concerns contributed to the price pressure in the live cattle market today. The gap-lower open triggered a rash of sell stops as speculative traders liquidated long positions. Demand concerns amid high boxed beef prices heading into a typically slower demand period during the holidays added fundamental pressure.

Cash cattle trade is not expected until late in the week, but price action so far signals traders are anticipating lower cash cattle trade as December live cattle are trading at a discount to last week's cash trade. If futures continue to slide, it would make it increasingly unlikely packers will raise cash cattle bids this week.

Technical analysis: December live cattle futures gapped below the November low and then quickly dropped through support at the mid-October low, which triggered sell stops. The contract stopped right at the uptrend drawn off the May and September lows. That trendline, which intersects around $130.81 tomorrow, is key support. Violation of that trendline would point the contract toward the September low at $127.97 1/2.


Feeder Cattle

Price action: The soon-to-expire November feeder cattle contract ended 47 1/2 cents lower today, while deferred contracts posted sharp losses.

Fundamentals analysis: Heavy selling in the live cattle market and a mildly firmer tone in corn weighed heavily on feeder cattle futures today. The discount futures are building to the CME feeder cattle index did not deter selling today despite tight feeder calf supplies.

Technical analysis: January feeder cattle futures gapped lower and took out the November low of $163.45. That level is now initial resistance, followed by today's gap from $163.85 to $164.27 1/2. Next support is the top of the summer consolidation range around $160.00.

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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