Livestock Analysis (VIP) -- October 11, 2013

October 11, 2013 09:51 AM


Price action: October lean hog futures closed 50 cents higher, while deferred contracts were steady to slightly lower today. Price action this week was again highly volatile with futures closing near the weekly lows.

5-day outlook: October lean hog futures expire Monday, which could be interesting as CME Group is using a volume-weighted price settlement procedure in the absence of USDA data needed to calculate the CME lean hog index. Barring any major fireworks around the October contract's expiration, traders will continue to monitor private cash and product market updates for price direction if the government shutdown doesn't end.

30-day outlook: The broadening pattern on the daily price charts is an indication hog futures are working on a top. But the market has been very resilient given that hog supplies have been slow to build seasonally and winter-month contracts are already trading well below where traders believe the cash index would currently be positioned.

90-day outlook: We fully expect seasonal pressure to build through fall as hog supplies build. As slaughter and pork production increase, demand will become a greater focal point. We are watching for confirmation of a top to extend winter hedge coverage.

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 settled steady to 50 cents higher on the day, which was a low-range close for most contracts. Nearby contracts edged out slight weekly gains but deferreds ended near steady with week-ago. Feeder cattle futures posted moderate to sharp gains for the day and week.

5-day outlook: Light cash cattle trade began in Texas and Kansas today at higher prices, and active trade will likely follow suit as showlists are tighter and private reports signal improved boxed beef performance this week. Traders will react to cash trade early next week and showlist estimates will again take on more importance until the government standoff ends. Barring an early-week solution, Friday's Cattle on Feed Report will likely also be delayed.

30-day outlook: The product and cash markets typically get a lift from holiday sales through November, which along with tightening supply prospects could keep the cash market climbing. The caveat this year could be the economic drag brought on by the government closure. How long this lasts will determine the severity of its impact. A government debt default at the end of this month could prove a major drag on the world economy.

90-day outlook: Cattle futures are expected to hit a (delayed) 10-year cycle high in 2014. Key will be when pastures improve enough to encourage herd retention. Major cattle loss in South Dakota last weekend adds to the bullish picture; already tight inventories means the death toll will be more acutely felt.

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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