Livestock Analysis (VIP) -- November 5, 2013

November 5, 2013 08:33 AM



Price action: Lean hog futures finished mostly 17 1/2 to 40 cents higher today, posting a mid-range close. The exception was the December contract, which slipped 7 1/2 cents lower and closed near the lows of the day.

Fundamental analysis: Futures traded higher initially on ideas the recent price downswing had been overdone. But December futures slumped as the day's cash hog market came in steady to $1 lower and the contract is trading at a slight premium to the cash index. February and later futures moved higher on ideas the impact of PEDV would begin to more readily appear in December.

Futures found some early support from the firmer wholesale pork market Monday. But this morning's trade saw the pork cutout slide $1.06. Movement was a solid 198.9 loads, however. Packers are still cutting in the black but supplies and weights continue to build, which reduces pressure to bid for supplies. USDA says average weights averaged 5 pounds heavier the week ended Oct. 26 versus a year earlier. Slaughter today is estimated at 436,000 head compared to 464,000 head last week and 431,000 head a year ago.

Technical analysis: December futures slumped after an early morning upswing and finished near the lows of the previous two days. The contract is consolidating after the big price down swing last week, suggesting it's pausing before the next big move. Key support is at the October low of $85.85 and tough resistance is at the contract high at $92.30.

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 enjoyed gains for most of today's session and finished 15 to 70 cents higher in all but the December contract, which was 5 cents lower. Nearby contracts ended low-range, while deferred months settled high-range.

Fundamental analysis: Strong gains in the feeder cattle market provided spillover support to live cattle today. Otherwise, buying interest was limited as early indications are that feedlots will have a tough time getting better than steady cash prices this week, especially with packers still cutting in the red.

Showlist estimates are up across the Plains and the boxed beef market has given signs it may be working on a top. This morning, boxed beef prices were mixed and movement was light, keeping demand concerns close at hand.

Technical analysis: December live cattle continue to consolidate above the $132.00 support level, after which support stands at the October low of $131.40. The October high of $134.70 marks tough resistance.

Feeder cattle

Price action: Feeder cattle futures gapped higher on the open and enjoyed strong buying interest throughout the day. The market closed 77 1/2 cents to $1.22 1/2 higher on the day.

Fundamental analysis: Softer corn prices amid expectations for a record 2013 corn crop and very tight calf supplies propelled feeder cattle futures this morning. The market's upside gap also encouraged some technical buying.

Technical analysis: January feeder cattle futures led today's charge, but the contract was unable to move through near-term resistance at last Thursday's high of $165.30. The next major resistance levels are the Oct. 23 high of $168.60 and the contract high of $169.22 1/2. Friday's dip to $163.45 is solid near-term support.

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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