Livestock Analysis (VIP) -- November 25, 2013

November 25, 2013 08:58 AM


Price action: Lean hog futures were narrowly mixed today with December futures slightly lower and back-month futures steady to slightly higher. July futures led strength with a gain of 60 cents.

Fundamental analysis: A strong supply of hogs is limiting upside price potential, but traders remain concerned that PEDV may soon cut into hog numbers. With disease concerns still building, back-month futures led price strength.

Estimated hog slaughter today of 430,000 is down 8,000 from last week and matches the year-ago kill pace. There is thought to be plenty market-ready hogs available for the holiday-shortened week, but packers are said to be in need of a few hogs for Friday and Saturday.

Limiting upside price potential are record-high average hog weights. The heavy hogs are a signal to packers that hogs need to move this week or finishing barns will be at risk of backing up supplies of market-ready hogs. That should limit strength in the cash hog market, limiting buying interest in lean hog futures.

Technical analysis: December lean hog futures are caught in a fairly narrow trading range with resistance at last week's high of $86.50 and support at last week's low of $85.10. A close above $86.50 would open upside potential to the top of the Nov. 13 downside price gap at $87.07 1/2. A close below $85.10 (which is also the bottom of the Sept. 4 upside price gap) would open downside price risk to initial support at $84.72 1/2. Below that, solid support wouldn't be found until the Aug. 23 low at $81.10.

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.



Price action: Live cattle futures ended the day mixed with December futures 40 cents lower, February through June futures slightly higher and back-month futures modestly lower.

Fundamental analysis: Negative packer margins are expected to limit strength in the cash market this week, limiting buying interest in live cattle futures. A $2.43 gain in heavyweight Choice boxed beef at midday, however, will help improve packer margins. The showlists in Nebraska, Kansas, Colorado and Texas are all up from last week, which should make it easier for packers to fill needs, especially in a holiday-shortened kill week.

With little (or no) weather premium built into futures and wintry weather moving into cattle country, the threat of some delayed marketings should limit pressure on cash bids this week.

Feeder cattle futures ended the day with moderate losses on pressure from higher corn trade throughout the session.

Friday's Cattle on Feed Report was basically in line with pre-report trade expectations and had little impact on today's trade.

Technical analysis: December live cattle futures opened on the session high and settled near the session low. Momentum in the market is clearly back to the downside. A narrow gap remains open in December futures between $131.65 and $131.80, marking that level as resistance. If filled, upside potential is to the mid-November high at $133.50.

Support is at last week's low of $130.65. A close below that level would open downside price risk to the September low just under $128.00.

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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