Livestock Analysis (VIP) -- September 10, 2013

September 10, 2013 09:41 AM


Price action: Lean hog futures closed slightly lower but near their highs for the day. Futures opened and traded lower in action dominated by light profit-taking after yesterday's surge to new highs. October and December futures closed 2 1/2 and 7 1/2 cents lower, respectively.

Fundamental analysis: Cash prices edged higher again today as both hog runs and average weights continue to be trimmed by the intense heat. The lean hog index edged higher again today and October futures trimmed losses in an attempt to narrow its $1 discount to the index.

Pork demand continues to be positive with a gain noted in the pork cutout value. Movement remains positive, as well. Both cash and futures normally trend lower in the fall but both have moved higher, prompted by the limiting effects of the heat and by retailer interest in featuring pork rather than beef amid fears of consumer resistance to high beef prices.

Technical analysis: Lean hog futures set back slightly today in light profit-taking following the surge to new highs Monday. Yesterday's high of $91.10 in October futures is immediate resistance, with psychological resistance occurring at each 50 cent mark thereafter starting at $91.50. October futures uncovered support at $90.00 today with stronger support resting at the Sept. 4 gap area beginning at $88.45 down to $88.05. Filling that gap would be confirmation the contra-seasonal rally was a bull trap.

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 saw light profit-taking for most of the day and October through June futures ended 10 to 32 1/2 cents lower, while farther deferred months closed steady to slightly higher.

Fundamental analysis: Traders again worked to reduce some of the premium nearby contracts hold to last week's cash trade at $123, as early indications are not favorable for higher prices. Showlist estimates are up and boxed beef prices have been under pressure to start the week. The lower prices have, however, encouraged better movement. Concerns about consumer and retailer resistance to higher prices remain close at hand.

But selling interest is also being kept in check by recognition the overall supply situation is tight, which will keep a floor under the cash market.

Technical analysis: October live cattle futures posted a downside day of trade, but the market respected near-term support at last week's low of $124.90. Resistance, meanwhile, stands at the top of the August upside gap at $126.40.


Feeder cattle

Price action: Feeder cattle futures posted losses of 17 1/2 to 27 1/2 cents today after trading in a very narrow range.

Fundamental analysis: Strength in the corn market gave bears a slight advantage in the feeder cattle market today, but both buying and selling interest are relatively light ahead of USDA's Crop Production and Supply & Demand Reports on Thursday. This data will provide traders a better read on the supply situation.

Technical analysis: October feeder cattle futures saw an inside day of trade and the contract finished near the middle of the range between support at the August low of $155.85 and resistance at the August high of $160.70.

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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