Livestock Analysis (VIP) -- October 9, 2013

October 9, 2013 09:54 AM


Price action: Lean hog futures saw choppy trade early today, but selling picked up as the day progressed and October through February lean hogs ended $1.25 to $1.67 1/2 lower for the day. Farther-deferred contracts closed 20 to 85 cents lower.

Fundamental outlook: Unease about how the expiration of the October contract on Monday will play out encouraged some traders to book profits and exit the market today. Open interest in the market has been steadily declining since the government shut down. As nearby contracts softened, technical selling picked up, since many believe the upside has been overdone.

Meanwhile, the cash hog market was mostly steady today. Packers are planning a large kill this weekend but supplies are on the rise. Official pork market data is lacking, but private reports indicated the pork cutout value softened yesterday.

Technical outlook: December lean hog futures broke through uptrending support drawn off the October lows today. Followthrough selling would point the contract toward a test of the October low of $85.85, followed by the bottom of the Sept. 4 upside gap at $85.10.

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: Cattle futures traded slightly lower in a narrow trading range after leaving a small downside gap on the open in the December and later contracts. October through August 2014 futures closed down 15 to 47 1/2 cents and near the day's highs.

Fundamental outlook: Cattle futures opened on the defensive on news South Korea had suspended some imports of U.S. beef after finding the feed additive zilpaterol in 22 MT shipment of beef from a Colorado Swift Beef Co. plant. In addition, the CME announced additional deliveries had been made against the expiring October contract.

However, selling was limited by bullish cash cattle hopes. Showlist supplies are lower compared to the previous week and private reporting services indicate Choice wholesale cuts firmed slightly this morning. Additional support came on reports that thousands of cattle likely died in last week's blizzard in South Dakota.

Technical outlook: December live cattle futures gapped lower at the open and failed to fill the gap through today's trading. However, futures found support at the bottom of the two-week long sideways trading range. Resistance starts at the gap at $132.25 and runs up to the top of the recent trading range at $132.60.


Feeder cattle

Price action: Feeder cattle futures finished fractionally weaker and near their day's highs, with the exception of the November contract, which finished 5 cents higher.

Fundamental outlook: Feeder cattle futures were pressured by the small uptick in corn futures and the slight weakness in live cattle futures. However, news that thousands of cattle may have died in last week's blizzard in South Dakota trimmed selling pressure as those losses tighten already very tight feeder calf supplies.

Technical outlook: Despite today's slight weakness, January feeders are still technically strong. Today's setback filled the upside gap left yesterday and then closed at the day's highs. Resistance rests at yesterday's contract high at $166.60. Support exists at the old triple-top contract high at $163.95.

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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