Livestock Analysis (VIP) -- October 14, 2013

October 14, 2013 09:24 AM


Price action: Lean hog futures ended steady to 40 cents lower through the June contract, with far-deferred futures up 5 to 20 cents.

Fundamental outlook: Trade volume remained sharply reduced due to uncertainty surrounding the unusual settlement process of the October contract given the lack of government price data to populate the CME lean hog index. October lean hogs expired today at $90.75 and December hogs are trading at around a $4 discount to where the October contract went off the board.

The cash hog market was mixed today amid varied demand. Eastern locations lowered bids as packers there say they will have no difficulty securing supplies. But western locations are in need of additional hogs this week. Early expectations are for mixed bids again tomorrow.

Technical outlook: December lean hog futures posted a downside day of trade on the daily chart, but finished well off the daily low. Support is layered from last week's low of $86.00 to the bottom of the early September gap area at $85.10. Resistance is at last week's high of $88.40 and extends to the contract high of $88.90.

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 closed 65 to 72 1/2 cents higher through the February contract, while farther-deferred contracts ended with slighter gains.

Fundamental outlook: Nearby cattle futures were supported by strength in the cash cattle market late Friday. With showlist estimates lower this week, traders have bullish hopes for cash trade. Therefore, traders are willing to keep futures at a mild premium to the cash market. But they don't want to get futures too far in front of the cash market as packers are working with negative margins.

USDA is scheduled to release its monthly Cattle on Feed Report on Friday, but that report is likely to be postponed even if the government shutdown ends this week, as the data collection process is on hold. Traders' focus will be on cash market fundamentals made available from private firm Urner Barry throughout the week.

Technical outlook: December live cattle futures found a light round of buy stops above last week's high to extend the price recovery from the May low. Bulls' next hurdle is a 75% retracement of the price plunge from the contract high to the contract low, which is around $133.83. The August high of $130.80 is support on a pullback.

Feeder cattle

Price action: Feeder cattle futures finished slightly lower in all but the November contract, which ended slightly firmer today.

Fundamental outlook: Mild strength in the corn market encouraged light profit-taking in the feeder cattle market today. But bullish hopes and strength in live cattle limited the downside to mild corrective selling.

Technical outlook: January feeder cattle traded into Friday's gap on the daily chart, but that gap along with the one from last Thursday remain open and the technical picture is strongly in bulls' favor. The bottom of Friday's gap at $167.85 is initial support, with last Thursday's gap from $167.82 1/2 to $166.37 1/2 acting as more important near-term support. Filling both gaps would suggest a short-term top is in place. Contract-high resistance stands at $169.20.

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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