Livestock Analysis (VIP) -- October 18, 2013

October 18, 2013 10:04 AM


Price action: Lean hog futures posted slight losses of 5 to 50 cents and finished mid-range for the day but higher for the week.

5-day outlook: The trade is adjusting to the return of regular market data as the government returns from its shutdown. The pork product market has held up relatively well, but the cutout value is starting to slip as hog supplies trend higher. This sets up the market for steady to lower cash hog prices next week.

30-day outlook: Hog numbers have been slow to rise, but recent signs hint numbers may be turning up. Meanwhile, the pork cutout value has slipped somewhat. The decline has trimmed packer cutting margins, but they reportedly still remain in the black. If numbers continue to build, cash prices will move lower as well. This week's technical picture, with futures slumping after moving to new highs, has traders looking for a top in futures.

90-day outlook: Hog numbers tend to rise through fall and early winter before easing. As usual when supplies are building, demand will be key. It normally weakens through fall before firming somewhat. But pork demand may benefit from high beef prices.

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 finished steady to 72 1/2 cents higher today. October live cattle posted gains for the week amid strength in the cash cattle market, while deferred futures ended lower as early week strength triggered a heavy round of profit-taking Thursday.

5-day outlook: After six straight weeks of strength in the cash cattle market, traders sense a short-term cash top is close. Therefore, buying interest will be limited unless there are indications packers will again raise cash cattle bids next week.

30-day outlook: Supply-side fundamentals remain strong as market-ready numbers continue to tighten. That limits downside risk even if the market posts a short-term top. To extend the price recovery, the demand side of the market must be strong. The boxed beef market must show enough strength to pull packer margins to near breakeven soon or packers will reduce kill hours and lower cash cattle bids.

90-day outlook: The boxed beef market typically gets a boost from year-end purchases. But with beef prices at historically high levels, retailers may not be as aggressive with beef purchases for fear of getting stuck with high-priced inventories if consumers balk at high prices.

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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