Livestock Analysis (VIP) -- October 17, 2013

October 17, 2013 09:50 AM


Price action: Lean hog futures gapped higher on the open but fell back, filled the gap, and closed near the day's low. Futures finished 5 to 45 cents lower.

Fundamental outlook: Futures gapped higher on the sharp decline in the U.S. dollar index and expectations of a return of regular market data with the ending of the government shutdown. Cash prices were reported as steady and the pork cutout value was pegged at $95.57 at midday amid strong movement.

Technical outlook: December hog futures gapped to a contract high of $89.50 but filled the gap on profit-taking. The low-range close gives bears momentum heading into tomorrow's open. Support lies at the bottom of the midweek gap at $88.10. Strong support is the September 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: A sharply higher open was met with selling interest to produce a bearish reversal in live cattle futures today. October live cattle were the exception as the contract closed just 15 cents lower. But December through June futures closed $1.10 to $1.47 1/2 lower.

Fundamental outlook: Early support came from confirmation of $128 to $129 cash cattle trade in Texas and Kansas, which is steady to $1 higher compared to last week. This helped to limit pressure on October futures, which are trading in line with the top of this week's cash trade range. Sharp pressure on the remainder of contracts suggests traders suspect a cash high has been posted.

There is also disappointment USDA has delayed the release of its Cattle on Feed Report, which was scheduled for tomorrow. USDA has not yet announced when the report will be released.

Meanwhile, USDA released its boxed beef report at midday today, which shows Choice values up $3.21 since USDA's last update on Sept. 30, to $196.46.

Technical outlook: December live cattle posted a bearish reversal after moving to a 2013 high of $134.00. The contract settled just off the session low of $131.70. Followthrough pressure tomorrow would be telling of the near-term trend and signal a high has been posted.

Feeder cattle

Price action: Feeder futures also saw a choppy day of trade and ended 82 1/2 cents to $1.17 1/2 lower in all contracts except the front month, which closed just 15 cents lower.

Fundamental outlook: Today's price action was corrective in nature as traders continue to note the tightness of calf supplies. There is also disappointment USDA will not release its Cattle on Feed Report tomorrow, although they expect the report to eventually reflect declining numbers.

Technical outlook: January feeder cattle futures gapped higher on the open and extended gains, but the contract met selling interest and posted a low-range close to post a bearish reversal. Followthrough pressure tomorrow and violation of support at this week's low of $166.55 could trigger a round of sell stops.

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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