Livestock Analysis (VIP) -- November 22, 2013

November 22, 2013 08:58 AM


Price action: December through April lean hog futures closed 25 to 90 cents lower today, while other contracts posted slight gains. For the week, hog futures were choppy, with the December and February contracts ending slightly lower, while deferred months posted slight gains.

5-day outlook: Recent pressure on the cash hog market is likely to continue next week as supplies are building and packers will be working with a shortened slaughter schedule. With nearby hogs trading at a premium to the cash market, the price pullback should extend. If futures drop through the recent lows after this week's pause, it would signal the market is ready to move the next leg lower.

30-day outlook: Seasonally, pork demand typically is strong through the holidays. With hog slaughter rising and average hog weights at record highs, there will be increased pressure on demand to chew through those extra supplies.

90-day outlook: Hog numbers should climb into mid- to late December and then start to gradually ease. If the impact from porcine epidemic diarrhea virus (PEDV) proves to be meaningful, hog numbers could decline more rapidly than anticipated. That's keeping us out of longer-term hedges at this time.

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.



Price action: Live cattle futures ended the day mixed, but posted sharp losses for the week. Softer boxed beef values resulted in $131 cash cattle trade this week, which was $1 lower than last week. This raises concerns a near-term high has been posted.

5-day outlook: Traders view the Cattle on Feed Report as neutral, as it showed figures right in line traders' expectations. Importantly, the report showed producers are keeping lots current, as the Marketings category came in above year-ago levels. But with On Feed at 94% of year-ago levels, the report provides a reminder of the tightening supply situation.

30-day outlook: Boxed beef prices and cash cattle bids typically firm into the end of the year, which signals this week's setback may be temporary. Another bright spot for the beef industry is exports, which are helping to offset some of the recent softness seen in the domestic market.

90-day outlook: Today's Cold Storage Report reflected mildly stronger-than-expected demand, as total beef stocks in frozen storage came in slightly below traders' expectations and showed stocks holding steady with the previous month. With tight supplies well known, demand holds the near-term key to prices.

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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