Livestock Analysis (VIP) -- October 1, 2013

October 1, 2013 09:30 AM


Price action: Lean hog futures saw followthrough from yesterday's losses and posted a low-range close with losses of 65 cents to $1.05 through the February contract. Deferred futures posted losses of 20 to 65 cents.

Fundamental analysis: Broad-based risk-aversion weighed on the commodity markets today due to the partial shutdown of the federal government. Additional pressure came from concerns about the possible financial implications on meat demand the shutdown creates. As a result, traders decided to take some profits out of the market and narrow the premium nearbys hold to the cash index.

The cash hog market was steady to $1 lower today as packers say they have largely secured this week's kill requirements. As a result, expectations are for the cash market to continue deteriorating this week as packers work to pad margins. Cash sources also say they are seeing more sows becoming available, which is raising kill levels.

Technical analysis: December lean hog futures posted a downside day of trade on the daily chart and violated support to post a monthly low of $85.85. Next support is $85.60, which marks a 25% retracement of the rally from the March low to the September high.

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 settled 60 cents lower in the front-month contract while deferred months were narrowly mixed. This was a high-range close for most contracts.

Fundamental analysis: Live cattle futures have faced profit-taking pressure to start the week as despite $2 to $4 higher cash cattle trade last week, futures are still at a premium to the cash market. But some buying interest returned late as tighter showlists could point to higher cash trade this week. Packers have seen profit margins dip deep into the red, however. Until the government shutdown ends, the market will not have boxed beef action with which to form cash trade expectations.

Technical analysis: December live cattle futures continue to consolidate just above $131.50, which is initial support, followed by the psychological $130.00 area that roughly coincides with the bottom of the Aug. 23 upside gap. Friday's high of $132.25 is initial resistance.

Feeder cattle

Price action: Feeder cattle futures faced pressure on the open, but the market firmed as the day progressed and futures ended 30 cents to $1.37 1/2 higher for the day, which was a high-range close. Deferred contracts led the rally.

Fundamental analysis: Weakness in the corn market lifted feeder cattle futures as traders anticipate cheaper feed prices will boost demand for a tight supply of calves. But buying enthusiasm in the front-month contract was kept in check by the sharp premium it holds to the cash index as well as losses in the live cattle market.

Technical analysis: The technical posture of October feeder cattle futures remains fully bullish as the contract continues to hover near contract-high resistance at Friday's high of $164.80. Strong chart support does not exist until the August high of $160.70.

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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