Livestock Analysis (VIP) -- October 2, 2013

October 2, 2013 09:44 AM


Price action: Lean hog futures enjoyed gains for most of the day, but the market saw some late profit-taking that resulted in a low-range close. Futures ended steady to 67 1/2 cents higher on the day, with far deferred contracts leading gains.

Fundamental analysis: Lean hog futures saw some corrective short-covering today amid ideas the selloff in reaction to last week's Quarterly Hogs & Pigs Report was overdone. In addition, the market expects nearby contracts to still be at a discount to the cash hog index, though index data has not been released due to the government shutdown. Cash hog prices have trended steady to lower this week, however, as supplies are becoming more readily available and packers are thought to have near-term needs secured.

Technical analysis: December lean hog futures saw an inside day of trading, leaving near-term support at yesterday's low of $85.85, while resistance stands at the bottom of last week's island at $87.20.

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 mostly firmer today, although nearby contracts finished mixed. October live cattle ended 5 cents firmer and December ended 7 1/2 cents lower. The rest of the market closed 15 to 70 cents higher.

Fundamental analysis: Futures were supported by tightening market-ready supplies and expectations for steady to higher cash cattle trade this week. Sources also report that even though beef market data has been suspended, wholesale trade has been stronger this week. Packers are bidding $123 for cattle after $126 cash trade last week. Feedlots are asking $127 for cattle this week. As a result, cash trade will likely be delayed until Friday.

Technical analysis: December live cattle futures tested resistance at last week's high of $132.25 before settling mid-range with slight losses. Bulls still hold the near-term advantage as the uptrend from the May low remains intact.

Feeder cattle

Price action: Feeder cattle futures ended 15 to 57 1/2 cents higher to further improve the technical situation of the market.

Fundamental analysis: Feeder futures were supported by tightening calf supplies and a slight improvement in demand due to recent pressure on corn prices. The result has been improved technicals, which point the market even higher near-term.

Technical analysis: November feeder futures have confirmed an upside breakout by seeing followthrough after yesterday's sharp gains. Today's high-range close makes bulls' next target the $167.00 level.

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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