Livestock Analysis (VIP) -- October 8, 2013

October 8, 2013 09:39 AM


Price action: October lean hog futures closed 37 1/2 cents lower while deferred contracts ended steady to 35 cents higher.

Fundamental outlook: Trading volume continues to be constricted by a lack of USDA data amid the government shutdown. Traders simply aren't willing to actively add new positions, though generally bullish attitudes are showing through.

Cash hog bids were mostly steady across the Midwest today, though there were scattered weaker bids reported. Packers are planning a large Saturday kill as they look to take advantage of strong margins, which is limiting pressure on the cash market.

December hogs finished today at an $8-plus discount to where the CME lean hog index was last quoted prior to the government shutdown. That big discount is keeping the contract supported as the cash market has been slow to weaken seasonally.

Technical outlook: The technical posture for December hogs is bullish. After dropping below the Sept. 20 correction low early last week, the contract is now hovering just below the contract high at $88.90. An upside breakout after a brief pause would be even more bullish.

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 mixed in a narrow range. December futures closed up 2 1/2 cents while February finished 7 1/2 cents higher. Further-deferred contracts ended 2 1/2 cents to 10 cents lower.

Fundamental outlook: Live cattle futures edged higher on expectations of steady to higher cash prices this week. Supporting that view are showlist estimates that are 19,000 lower in Kansas, Colorado and Texas and 5,000 higher in Nebraska. But packers are reportedly cutting in the red, which will temper their willingness to bid up for supplies.

The absence of data due to the government shutdown has prompted any market participants to withdraw from the market. Very narrow trading is the result of their departure from the market.

Technical outlook: December live cattle futures traded in an even narrower range than Monday, leaving prices pressed against last week's high at $132.60. Support exists at old resistance of $130.80.

Feeder cattle

Price action: Price action was light in feeder cattle futures. November futures traded in a 2 1/2 cent range, closing up 85 cents. Other contracts closed 80 to 90 cents higher.

Fundamental outlook: Feeder cattle futures gained support from the selloff in corn futures and generally firmer live cattle prices. Expectations of tighter supplies continue to support prices. Traders continue to look for prices to firm into a long-term cycle high in 2014.

Technical outlook: November feeder cattle are pressed up against resistance at last week's high of $166.50. Support continue to exist at the Sept, 24 gap area from $163.00 to $162.45.

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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