Livestock Analysis (VIP) -- November 20, 2013

November 20, 2013 08:49 AM



Price action: Lean hog futures finished 55 cents to $1.02 1/2 higher through the August 2014 contract, which was high-range for the day.

Fundamentals analysis: Traders covered short positions in the hog market today amid ideas recent price pressure has been overdone. The willingness to cover short positions given the premium futures hold to the cash market, which is trending lower, signals traders aren't willing to give up their long-standing bullish stance just yet.

Part of the encouragement for the short-covering came from the cash hog market. While the general tone in cash hog bids was steady to weaker amid building supplies, there were scattered firmer bids in some of the direct markets, which came as a surprise.

Technical analysis: December lean hog futures closed back above the October low of $85.85, which could be a sign a short-term low is in the works. To more strongly signal such price action, however, the contract must fill the Nov. 13 chart gap at $87.07 1/2. If bulls can't get that accomplished, the short-term consolidation would suggest the market is pausing before moving the next leg lower.

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: Bulls had a slight advantage for most of the session though the market did see mixed action at times today. Futures ended mid-range with gains of 10 to 47 1/2 cents.

Fundamentals analysis: The live cattle market sustained significant technical damage yesterday, but most contracts did stop short of uptrending support drawn off the lows since May. This encouraged some technical-based short-covering today, as did some contracts' dip into oversold territory. Improved movement in the boxed beef market this morning along with a 53-cent gain in Choice boxed beef cuts also helped lift futures.

However, additional upside potential for the live cattle market is likely limited as near-steady showlists and mixed to lower boxed beef prices thus far make it unlikely packers will pay up for supplies this week, especially since they have seen profit margins dip deeper into the red.

Technical analysis: December live cattle dipped 5 cents below yesterday's low, which coincides with uptrending support drawn off May and September lows, but the contract ended high-range for the day. Key uptrending support intersects around $130.85 tomorrow. Initial resistance is at the top of yesterday's downside gap at $131.80.


Feeder Cattle

Price action: Feeder cattle futures ended at or near session highs with gains of 20 to 87 1/2 cents. Deferred contracts were the upside leaders.

Fundamentals analysis: Feeder cattle futures enjoyed some corrective short-covering amid ideas the downside was overdone recently. Gains in the live cattle market along with softer corn prices added to the positive tone. November futures, which expire tomorrow, benefited from some efforts to narrow the slight discount the contract holds to the cash index.

Technical analysis: January feeder cattle futures saw an inside day of trade, leaving support at yesterday's low of $162.05 and resistance at the Nov. 1 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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