Livestock Analysis (VIP) -- November 8, 2013

November 8, 2013 09:01 AM


Price action: Lean hog futures posted gains of 25 to 67 1/2 cents in correction trading. December futures closed up 57 1/2 cents, posting a midrange close and finishing 22 1/2 cents below last week's closing level.

5-day outlook: Hog supplies continue to build as numbers and weights are on the rise. This will put pressure on cash prices going forward. However, packers continue to cut in the black, which will keep them active buyers but unwilling to pay more than steady prices. Technically minded traders will favor the negative side as charts traced strong topping signals.

30-day outlook: Trends favor the downside for prices as supplies are on the increase and wholesale pork prices are encountering price resistance. The key will be wholesale beef prices. If they remain firm, wholesale pork could see some spillover demand as a result and limit the break in hog prices somewhat.

90-day outlook: Supplies will turn down once the seasonal surge passes. That downturn in supplies should lift hog futures as continuing strong wholesale beef prices translate into stronger wholesale pork prices. The market is still trying to get a handle on how much early 2014 hog supplies may have been trimmed due to the outbreak of PEDV earlier this year.

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.




Price action: Live cattle futures enjoyed short-covering today, with nearby contracts posting gains for the week to avoid doing any serious chart damage. Feeder futures were pressured today by strength in the corn market.

5-day outlook: The high-range close for the day in live cattle futures signals traders' attitudes are still bullish and the round of profit-taking is complete -- especially in the face of $1 lower cash cattle trade this week. Key will be if followthrough buying lifts futures to begin next week. But if traders return to take profits, it would suggest market bulls are growing tired and remain concerned about demand.

30-day outlook: Choice beef values typically favor a steady to higher trend during this time of year. Given the tight cattle outlook, pressure on beef values should be limited. But more concerning to traders are rumors some packing plants are planning to slow slaughter runs to adjust for tighter supplies. Lower demand for cash cattle would limit upward momentum in the cash market and live cattle futures.

90-day outlook: USDA further tightened its beef production outlook for 2014 in this morning's balance sheets and sees supplies 5.9% tighter than this year. That outlook suggests higher prices are coming in 2014.

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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