Livestock Analysis (VIP) -- October 24, 2013

October 24, 2013 10:03 AM


Price action: Lean hog futures surged into the close and settled high-range with gains of $1.45 to $2.42 1/2, with deferred contracts leading the charge.

Fundamental outlook: Talk that additional cases of the porcine epidemic diarrhea virus may draw down the hog herd next year propelled deferred contracts, which provided spillover support to nearby futures. On the way up, buy stops were triggered, leading to additional technical buys. Despite today's strong gains, the December contract remains at nearly a $3 discount to the cash hog index.

Meanwhile, the cash hog market was steady to lower today as supplies are building and packers have near-term needs secured. Traders are optimistic strength in the beef market could give the pork market a boost.

Technical outlook: December lean hogs hit a new contract high of $89.72 1/2 today and posted a high-range close. Today's high is initial resistance, followed by the $90.00 mark. Former resistance at the September high of $88.90 is now support.

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 closed narrowly mixed with December and February futures posting gains of 5 to 12 1/2 cents and deferred contracts posting losses of 7 1/2 to 35 cents. October futures closed up $1.00.

Fundamental outlook: The October futures contract moved above $132 to bring it into alignment with the $132 price being paid in the Texas and Kansas cash markets. The December and February contracts edged higher in spillover buying. December and later contracts traded in a very narrow range reacting to news of a slight setback in dressed beef prices. But Choice boxed beef held above the $200 mark in morning trading and movement was viewed as positive. The market also got light pressure from today's export sales report, which showed weekly beef export sales for the week ended Oct. 3 (latest available) were down 2,400 MT from the week prior.

Technical outlook: December live cattle futures traded in a very narrow range, posting an inside day versus Wednesday's trading range. Futures closed near the day's lows and on the fall uptrend line. The $132.00 area provides support if that uptrend line is penetrated. The $134.00 area offers resistance.


Feeder Cattle

Price action: Feeder cattle futures closed 37 1/2 to 95 cents lower, finishing just off their lows of the day.

Fundamental outlook: Profit-taking dominated trade today as futures traded in a very narrow range. The market shrugged off a lower corn market as a result. October feeders saw their premium to the cash index decline to about 50 cents, while the November contract carries about a $2 premium to the cash index.

Technical outlook: November feeder futures edged lower, testing support at Monday's low of $166.35. Resistance starts at $168.75.

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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