Livestock Analysis (VIP) -- October 21, 2013

October 21, 2013 09:51 AM
 

Hogs

Price action: Lean hog futures closed steady to 47 1/2 cents lower, with December leading declines.

Fundamental outlook: Lean hog futures edged lower on expectations of rising supplies and a seasonal weakening in demand. The report from USDA that average hog weights in the Iowa/southern Minnesota market rose 2.7 lbs. for the week ending Oct. 12 seemed to add to those ideas. Slaughter today is pegged at 433,000 head, up from last week's 432,000 head but down from 434,000 head a year earlier.

But pork cutout weakened just 18 cents this morning and movement is reported as positive, keeping packer margins narrowly in the black, which should keep cash bids steady tomorrow.

Technical outlook: December hog futures continue to give back gains recorded last week, with the contract settling just above Friday's low of $87.40. December futures need to take out last week's high at $89.50 to turn traders bullish.

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 were choppy today and favored a firmer tone on the close. Futures ended narrowly mixed.

Fundamental outlook: Pressure on October live cattle was limited by last week's record cash cattle prices, with trade reported as high as $131 in the Plains. The front-month contract ended the day at around a $1 discount to the top of last week's cash trade.

Price action could remain choppy until more is known about this week's cash trade. This week's showlist is smaller than last week and beef values were higher this morning. But packers need to improve their ailing profit margins.

Technical outlook: December live cattle futures posted a quiet day of trade on the daily chart and posted a low-range close. Near-term boundaries are support at last week's low of $131.45 and resistance at last week's high of $134.00.

 

Feeder Cattle

Price action: Feeder cattle futures ended the day 17 1/2 to 45 cents lower through the January contract, with deferreds steady to 15 cents higher.

Fundamental outlook: Strength in the corn market eroded futures into the close, although pressure was limited by tightening calf supplies. The choppy tone in live cattle futures also contributed to two-sided trade in feeder futures.

Technical outlook: November feeder futures posted an inside day down on the daily chart. Violation of support at last week's low of $166.35 could trigger some sell stops, but for now, no technical chart damage has been done.

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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