Livestock Analysis (VIP) -- October 16, 2013

October 16, 2013 09:47 AM


Price action: Lean hog futures posted gains of 60 cents to $1 through the April contract. Farther-deferred contracts ended 10 to 47 1/2 cents higher.

Fundamental outlook: Hog futures rallied today despite weakness in the cash hog and wholesale pork markets. December hogs have posted strong gains since the October contract expired on Monday. With no CME lean hog index to base their trading decisions, traders have opted to use the October contract's settlement price of $90.62 as an upward target.

Cash hog bids were generally steady to weaker today, though there were some scattered firmer bids in areas where supplies remain tight. While packers are working with profitable margins, slaughter supplies have started to build and pork product prices are softening.

Technical outlook: After a gap-higher open, December lean hog futures rallied to a new high of $89.05, eclipsing the old high by 15 cents, but the contract was unable to close above the hold high. Fresh buying is needed above the old high to confirm an upside breakout. Otherwise, the contract could slip back to strong support around the $86.00 level.

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 spent most of the day in positive territory and ended 20 to 80 cents higher for the day, which was good for a high-range close.

Fundamental outlook: Live cattle futures benefited from private data indicating the boxed beef market is off to a strong start. Urner Barry reports Choice boxed beef values firmed 10 cents while Select climbed 11 cents this morning. Showlist estimates are also tighter this week. This combination should give feedlots an edge in cash cattle negotiations this week, though negative packer profit margins add a bit of uncertainty. October futures are at more than a $1 premium to last week's Southern Plains cash action at $128.

Technical outlook: December live cattle futures extended the contract's gradual uptrend since September today and closed above resistance at the November 2012 low of $133.00, turning that level into support. Bulls' next target is the psychological $134.00 mark, followed by the February high of $134.75.

Feeder cattle

Price action: Bulls had the advantage in the feeder cattle market for most of the session and the market ended 22 1/2 to 82 1/2 cents higher for the day, which was high-range for most contracts.

Fundamental outlook: Early gains in the U.S. dollar index encouraged light profit-taking in feeder cattle futures, but the chart pattern of the market remains fully bullish, giving bulls an edge. Pressure on the corn market today and expectations the Cattle on Feed Report (if it was released on Friday) would reflect tightening calf supplies added support.

Technical outlook: November feeder cattle futures nearly matched yesterday's trading range, leaving the wide island gap from $168.05 to $169.00 in place as resistance. Support stands at the Oct. 2 high of $166.50, which roughly coincides with the bottom of the Oct. 10 upside gap.

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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