Livestock Analysis (VIP) -- October 29, 2013

October 29, 2013 09:57 AM


Price action: Lean hog futures saw profit-taking following yesterday's sharp gains to close 35 to 70 cents lower.

Fundamental analysis: Traders worked to even positions after futures moved into overbought territory according to the Relative Strength Index yesterday. Traders also worked to get nearby futures back in line with the cash index after December hogs moved to a premium to the index yesterday.

Pressure in hogs was limited by mixed cash hog bids, with packers working to keep kill lines as full as possible given profitable margins. But with pork cutout values down sharply again this morning, traders will be keeping a close eye on the product movement, as it's signaling a seasonal high has been posted. Early expectations are for mostly steady cash bids tomorrow.

Technical analysis: December lean hog futures posted a contract high of $92.10 in early trade before setting back on profit-taking. But bulls clearly hold the near-term advantage as futures remain in a steep uptrend. Support lies at the bottom of the Oct. 25 gap area at $89.72 1/2 and extends to the October low of $85.85.

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 slightly higher and near their highs for the day, with the exception of the April 2014 contract that closed down 5 cents. December cattle led gains and finished up 47 1/2 cents higher.

Fundamental analysis: Cattle futures gained support for continued gains in wholesale beef prices. Choice beef rose $1.10 to $204.22 per cwt. this morning. But traders are cautious about the increase as movement has slowed on the rise in price and just 61 loads changed hands this morning.

Packers continue to cut in the red, even with the rise in wholesale prices. That gives them plenty of reason to resist lifting cash bids. Meanwhile showlists are reportedly higher, which could work against feedlots. Slaughter today is estimated at 123,000 head, which is even with a week-ago and below last year's 125,000 head.

Gains were limited by news Taiwan had detected the feed additive zilpaterol in U.S. beef and was increasing inspections on some U.S. beef imports.

Technical analysis: December futures edged higher, closing at its highest level since early February. Futures are testing resistance at Friday's high of $134.70. Support exists at the $133.00 level.

Feeder cattle

Price action: Feeder cattle futures finished mixed following another day of very narrow trading. October feeders led the decline, closing down 55 cents.

Fundamental analysis: Feeder cattle futures saw profit-taking as traders evened positions ahead of the release of the Cattle on Feed Report Friday. The narrow trading range mirrored the narrow trading range seen in corn futures and the slightly negative close came as corn futures edged higher near the end of the day's trading.

Technical analysis: November feeder cattle futures continue to trend sideways, compressing into a narrow trading range. The $166.00 area provides support while the $168.00 area offers resistance.

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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