Livestock Analysis (VIP) -- November 4, 2013

November 4, 2013 08:37 AM


Price action: Lean hog futures closed 20 to 72 1/2 cents higher in all but the lead-month December contract, which finished 2 1/2 cents lower.

Fundamental analysis: Mild short-covering was seen in the hog market today after last week's price pressure. But neither buyers nor sellers were too eager to move the market much. Sellers are remaining cautious given concerns over porcine epidemic diarrhea virus (PEDV) and as previous signs of a top have attracted fresh buying interest. Buyers are cautious as last week's technical signs of a top were the strongest yet and as hog supplies are gradually starting to build.

Cash hog bids were mostly steady today, which was a little better than expected. Given strong packer margins, the cash market may not face much pressure even though plants shouldn't have problems securing needed supplies.

Technical analysis: December lean hog futures have now seen four consecutive days of price pressure after posting a key bearish reversal to start the move lower last Wednesday. That signals a short-term top is in place. To confirm a major top, the contract would need to close below the October low at $85.85. Last week's contract high at $92.30 stands as tough resistance if there's another rally attempt.

Hedgers: 50% of expected 4th-qtr. production is hedged in Dec. lean hog futures at an average price of $82.12 1/2.

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 firmed into the close to finish steady to 45 cents higher.

Fundamental analysis: Futures started the day under light pressure on indications the cash market was running out of steam. But price strength in the boxed beef market helped bring futures off session lows. Choice boxed beef values were 70 cents higher this morning, though movement was light.

Traders are likely to remain cautious about this week's cash prospects given a larger showlist across the Plains. This lowers feedlots' bargaining power.

Technical analysis: December live cattle are trading in line with last week's $132 cash cattle trade and spent the day pivoting around Friday's low. The next level of support is the October low of $131.45. Falling through this level would give bears the short-term upper hand.


Feeder cattle

Price action: Feeder cattle futures ended 10 to 37 1/2 cents higher through the April contract, with May ending 17 1/2 cents lower.

Fundamental analysis: November feeder futures are trading at around a $2 discount to the cash index and will track the cash market more closely with under three weeks until expiration. January feeders are trading in line with the front-month contract. Futures saw light trading today and benefited from short-covering.

Technical analysis: Support for January feeders lies at last week's low of $163.45, with resistance at the $166 level. Bears have the near-term advantage after last week's sharp losses.

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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