Livestock Analysis (VIP) -- November 21, 2013

November 21, 2013 09:11 AM


Price action: Lean hog futures faced pressure for much of the day, but traders did return to engage in some short-covering to wrap up the session. December through June futures closed steady to 35 cents lower, while far-deferred months were mixed.

Fundamentals analysis: Market-ready hog supplies continue to expand, which has kept cash hog bids and thus the cash hog index pointed lower. This is limiting buying interest in futures.

On the other hand, strong packer profit margins have helped ward off any steep selloff in futures or the cash market. The same can be said for strong movement on the price pullback in the pork market. Movement this morning climbed to 245.35 loads on a 64-cent slide in the pork cutout value.

Technical analysis: December lean hogs hit a new weekly high today, but the contract must fill the Nov. 13 downside gap of $87.07 1/2 to signal it is working on a short-term low. Support remains at this week's low of $85.10.

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 finished 40 to 42 1/2 cents higher through the August 2014 contract, which was an upper-range close but off session highs.

Fundamentals analysis: Light cash cattle trade got started at $131 in Texas and Kansas late morning. While that was down $1 from the bulk of last week's trade, it wasn't as low as some traders feared. Therefore, traders mildly covered short positions.

Traders are also preparing for Friday afternoon's Cattle on Feed Report, which is expected to show On Feed numbers down nearly 6% from year-ago, but Placements are expected to be up sharply from last October.

Technical analysis: December live cattle futures posted a bullish reversal today. To signal a short-term low is in the works, followthrough buying is needed and the contract must fill Tuesday's gap at $130.80 -- it stopped 5 cents shy of filling that gap today. Failure to fill the gap would suggest the contract is pausing before extending the recent price pullback.


Feeder Cattle

Price action: Feeder cattle futures posted slight gains today, ending 10 to 62 1/2 cents higher through the May 2014 contract.

Fundamentals analysis: Traders mildly covered short positions in the feeder cattle market today amid ideas the downside has been overdone on the recent pullback. But strength in the corn market limited buying interest.

Technical analysis: January feeder cattle futures must fill Tuesday's chart gap at $164.27 1/2 to signal a short-term low is in the works. A drop through Tuesday's low at $162.05 would signal a deeper corrective pullback is coming.

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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