Livestock Analysis (VIP) -- October 30, 2013

October 30, 2013 09:38 AM


Price action: Lean hog futures settled 95 cents to $1.60 lower, which was a low-range close.

Fundamental analysis: Lean hog futures tried the upside early, but buying interest proved to be light and profit-taking then kicked in. A series of sell stops were triggered on the move lower, resulting in the low-range close.

Pressure on the cash market also weighed on hog futures today, especially since the December contract moved to a premium to the cash market yesterday. That premium was erased today, though deferred months continue to trade above the cash index amid expectations that supplies will start to ease early next year and build into summer 2014.

Technical analysis: December lean hog futures posted a key bearish reversal after pushing out to a contract high and then finishing below yesterday's low. Followthrough selling would confirm the reversal top and suggest a major top may be in the works.

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 eroded through the trading day. December and later contracts finished 75 cents to $1.15 lower and at the lows of the day. December futures led the decline.

Fundamental analysis: Position-squaring ahead of tomorrow's October Cattle on Feed and Cold Storage Reports dominated trading today. The cash cattle trade remained quiet ahead of the release of those reports, except for an unconfirmed report of cash cattle moving at $132.50 in the northern market. If there's followthrough selling in cattle futures Thursday, it could negatively impact cash cattle trade for the week.

The wholesale beef market showed gains in the price of both Choice and Select boxed beef this morning. In addition, movement picked up, though sluggish retailer demand as prices have risen has traders concerned the product market is nearing a short-term top.

Technical analysis: December futures slumped sharply but remain in the uptrend from the May low. Last week's high at $134.70 is solid near-term resistance. The last reaction low at $131.45 is key near-term support, as the uptrend from the May low currently intersects around that level.


Feeder cattle

Price action: Feeder cattle futures lost ground through the trading day and closed at the day's lows. November and later contracts closed down $1.20 to $2.10.

Fundamental analysis: Feeder cattle futures weakened on position-squaring ahead of Thursday's USDA reports and the selloff in live cattle futures. In addition, traders pushed November futures lower to bring it in alignment with the cash feeder cattle index.

Technical analysis: November futures fell through support formed at the $166.30 level the past few weeks, triggering sell stops. The upside gap on Sept. 24 and the six-month-long uptrend line offer support at $163.00.

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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