Livestock Analysis (VIP) -- October 15, 2013

October 15, 2013 09:33 AM


Price action: December lean hog futures closed $1.45 higher for the day, which was within the upper quadrant of today's wide trading range. Deferred contracts posted more modest gains of 40 cents to $1.15.

Fundamental outlook: December lean hogs surged as market participants worked to narrow the wide discount the contract maintains to the October contract, which expired at $90.75 yesterday. Such price spreads take on added importance since traders still do not have cash index data with which to compare futures prices.

Meanwhile, market-ready hog supplies are on the rise, but so are slaughter rates. This is resulting in a mixed cash hog markets. Some locations had to raise bids by as much as $4 today to secure supplies, while other locations are paying steady to lower prices as they are having no trouble booking their needs.

Technical outlook: December lean hogs surged and settled back near the October highs, signaling the market's rally has not not run its course. Followthrough selling would have bulls targeting the October high of $88.40, while a reversal would have bears eying the October low of $85.85.

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 slumped as traders booked profits after the recent runup in prices. October futures led declines with a loss of 95 cents while December and later contracts were mostly 38 1/2 to 55 cents lower. Futures finished near their lows of the day.

Fundamental outlook: Strength in the U.S. dollar and concerns over the rising number of deliveries against the expiring October contract pressured prices today. The decline in October futures brings that contract more in line with last week's cash price of $128 paid in the Southern Plains. December and later contracts saw the selling pressure tempered market-ready supplies continue to tighten.

Traders have bullish cash cattle hopes for the week as showlist estimates are down compared to a week earlier and private reporters indicate wholesale beef prices rose in early week trading. Cash trade is not expected until late in the week.

Technical outlook: The setback now makes today's high of $133.20 resistance for the December contract with $132.00 offering initial support at both the fall uptrend line and last week's lows. The Sept. 23 gap area at $130.75 to $130.22 1/2 serves as the downside target if support at the uptrend line is violated. To the upside, $133.83, which is a 75% retracement of the decline from the contract high to the contract low, serves as the next upside target if today's high is taken out.

Feeder cattle

Price action: Feeder cattle futures closed sharply lower and near the daily lows. Futures finished $1.40 to $1.90 lower with November leading the decline.

Fundamental outlook: A gap-lower open triggered long liquidation. Funds took profits after prices surged to new contract highs last week and on nervousness over the expiration of the October contract. However, ongoing tight supplies served to support prices on the selloff.

Technical outlook: November futures gapped lower today and left a two-day island top on the daily chart. While gaps are important, they are more common in cattle futures, possibly reducing the negative cast of the today's island top. For instance, there is support at $166.94 1/2 due to a gap left Oct. 10. Yesterday's contract high at $169.60 is overhead resistance.

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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