Livestock Analysis (VIP) -- October 28, 2013

October 28, 2013 09:42 AM


Price action: Lean hogs futures gained strength through the day, finishing at or near the day's highs. December through August futures closed $1.52 1/2 to $2.60 higher.

Fundamental analysis: The expiration of the October contract saw December and deferred futures surge as traders sought to align futures with the lean hog cash index. That was finally accomplished as December futures closed about a $1 above the index, which is projected at $91.12 for Oct. 25.

Futures gained support on news the pork cutout rose 28 cents this morning. Packer cutting margins improved on the firmer wholesale pork and lower cash bids paid today, which may bode well for cash prices on Tuesday. Slaughter is rising but only versus year ago. Slaughter today is estimated at 431,000 head, down from 433,000 head a week ago but up from 426,000 head a year ago.

Technical analysis: December lean hog futures surged to a new contract high of $92.00, leaving Friday's upside gap unfilled. The $90.00 area now serves as support with further support resting at $88.00, if that lofty support zone is broken.

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 finished 15 to 82 1/2 cents higher, which was anywhere from low- to high-range for the day, depending on the contract.

Fundamental analysis: The record cash cattle prices paid last week were supportive for live cattle futures today. Traders are wanting to keep futures at a slight premium to the cash market, but their reluctance to push futures too far in front of the cash market despite tightening supplies suggests they sense a short-term top may be close. While market-ready supplies are tight, showlist estimates are up from week-ago and packers are working with negative margins, which raises some questions about whether they will again raise cash cattle bids.

Boxed beef prices were sharply higher this morning, with Choice and Select values each surging more than $2. But with the Choice value above $200, movement has dramatically slowed as retailers fear getting stuck with high-priced beef if consumers balk at higher prices.

Technical analysis: December live cattle futures posted an inside day following Friday's wide trading range. To extend the uptrend, the contract must clear last week's high at $134.70, which was a nickel shy of the February high. Above that, tough resistance is rather scarce until the contract high at $137.50.


Feeder cattle

Price action: Feeder cattle futures closed 42 1/2 to 87 1/2 cents higher following a very narrow day of trade.

Fundamental analysis: Strength in the live cattle market and pressure on corn futures supported feeder cattle today. Additional support came from tight calf supplies.

Technical analysis: January feeder cattle futures are consolidating after posting a contract high two weeks ago. An upside breakout from the short-term consolidation range would be highly bullish, while a downside breakout would suggest a corrective pullback is likely.

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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