Livestock Analysis (VIP) -- November 7, 2013

November 7, 2013 08:17 AM



Price action: Lean hog futures closed slightly higher with the exception of the May 2014 contract which closed slightly weaker. December futures closed midrange while February and April futures finished near their daily highs.

Fundamental analysis: Technically-oriented trading dominated early action in the December contract as traders lifted prices in an attempt to fill the downside gap left yesterday. But strength in the U.S. dollar index coupled with steady to weaker cash hog bids limited early buying interest.

Futures later got a lift from the wholesale trade as USDA reported the pork cutout value rose $2.59 on positive movement. Today's hog slaughter is estimated at 436,000 head, up versus 433,000 head a week earlier and 433,000 a year ago.

Technical analysis: December futures attempted to close the downside gap left on Wednesday but fell 17 1/2 cents short of doing so. December futures closed underneath the fall uptrend line for the second day in a row, adding to the negative appearance on the December chart. The $87.00 area offers light support with $86.00 offering stronger support. The $88.00 level is resistance.

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 ended mostly 20 to 35 cents lower on news of cash cattle trade beginning in the Plains.

Fundamental analysis: Cash cattle trade got underway in Kansas and Texas this morning at $131. While only light trade has been confirmed, movement is expected to pick up at this level, which is down $1 from last week. Larger showlists and a softer tone in the boxed beef market gave feedlots less bargaining power this week.

December live cattle are trading at a slight premium to this week's cash cattle trade, which suggests the likelihood of limited price action tomorrow as traders even positions ahead of the weekend.

Technical analysis: December live cattle have completed a 25% retracement of the rally from the May low to the October high and closed below it. Support at the 38% retracement around $130.17 closely coincides with uptrending support drawn off the May and September lows.


Feeder cattle

Price action: Feeder cattle futures ended 22 1/2 to 62 1/2 cents lower on spillover from live cattle.

Fundamental analysis: Feeder futures were pressured by spillover from live cattle and a slightly firmer tone in the corn market for much of the day. With November feeder futures trading in line with the cash index, limited price action is expected tomorrow.

Technical analysis: Support for January feeder futures lies at last week's low of $163.45, with contract-high resistance at $169.22 1/2. Trade outside of these boundaries would set the next trending move.

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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