Livestock Analysis (VIP) -- November 6, 2013

November 6, 2013 08:49 AM


Price action: Lean hog futures gapped lower on the open and extended losses to finish 80 to 95 cents lower in the nearbys, with deferred contracts posting losses of 10 to 77 1/2 cents.

Fundamental analysis: A combination of technical selling and building supplies pressured lean hog futures today. Pork cutout values softened again this morning and packers are having no difficulty securing needed supplies. That combination resulted in mostly weaker cash hog bids, with some markets as much as $1.50 softer today. Expectations for steady to weaker cash hog bids again tomorrow could result in followthrough pressure in futures.

December lean hog futures are trading in line with the cash index, but the February contract holds around a $3.85 premium to the index, which provides more near-term downside risk for the winter-month contract.

Technical analysis: December lean hog futures gapped below uptrending support to do technical chart damage. Followthrough pressure tomorrow would have bears targeting the October low of $85.85. Filling today's gap would signal price weakness was a bear trap and reopen the upside to the contract high of $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 traded in a very narrow range and closed narrowly mixed. December futures finished down 2 1/2 cents; February closed up 7 1/2 cents.

Fundamental analysis: Futures traded in a very narrow range as traders waited on indications from the cash cattle market. Live cattle opened slightly weaker on news wholesale beef prices weakened slightly Tuesday afternoon. Further weakness in the value of Choice beef was noted this morning, but news movement improved helped offset the negative news of the price decline.

Showlist supplies are up slightly and packers continue to cut in the red. This will keep pressure on their bids compared to last week. Producers' asking prices are even with last week. Slaughter today is estimated at 119,000 head. That's up from last week's 114,000 head and last year's 115,000 head.

Technical analysis: For the fourth day in a row, December futures finished near support at $132.00, which keeps futures in alignment with cash prices in the Southern Plains last week. The next layer of support rests at $131.40. Resistance starts at $134.70. Daily trading ranges continue to compress, which hints the next move could be quite strong.

Feeder cattle

Price action: Feeder cattle futures closed slightly to moderately higher with the January contract leading gains and closing up 47 1/2 cents. November futures, which are near fully aligned with the cash index, finished up 7 1/2 cents.

Fundamental analysis: The continuing slide in corn futures coupled with weakness in the U.S. dollar index to lift feeder cattle futures. The ongoing tight supply of feeder cattle numbers continues to support feeder cattle futures on setbacks.

Technical analysis: January feeder cattle futures posted another day of very narrow trading. Tuesday's upside gap remains open, but support rests just under the gap at $163.45. Resistance starts at $167.00 and runs up to the contract high at $169.22 1/2.

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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