Livestock Analysis (VIP) -- September 11, 2013

September 11, 2013 09:27 AM


Price action: Lean hog futures closed steady to 55 cents lower through the July 2014 contract.

Fundamental analysis: October and December lean hog futures ran into light profit-taking today after gapping higher on the open. While traders are willing to take some profits out of the market, selling interest is limited, suggesting attitudes remain fully bullish.

Driving those bullish attitudes is unexpected fundamental strength. The cash and product markets are usually trending lower by now as supplies build seasonally. But strong demand and weather-induced slowdowns in hog weight gains and marketings is supporting the cash and product markets. Until there are signs of a fundamental top, selling interest in lean hog futures will be limited to profit-taking.

Technical analysis: December lean hog futures gapped to a contract high and then slipped, but was able to avoid a key bearish reversal by closing above yesterday's low. While the contract is slightly overbought, the technical posture is still highly 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 opened weaker, attempted to move higher then slipped to close narrowly mixed. October futures closed 2 1/2 cents higher while the December through April contracts finished 7 1/2 to 15 cents lower.

Fundamental analysis: Futures traded in a narrow range waiting for direction from the cash market. Traders expect cash cattle prices to eventually move higher this fall, as they normally do seasonally, but there's cash uncertainty this week.

The market did receive some positive news on the wholesale front today, which had featured weaker prices and slow movement recently. Today's trade saw a slight increase in both Choice and Select boxed beef, but more importantly, it featured improved movement. If that movement follows through, packers could become a little more aggressive with their cash bids.

Technical analysis: October futures traded in a narrow range, finding resistance at Tuesday's high and support at Tuesday's low. The contract has support from the $125.00 area down to $124.12 1/2. It has heftier resistance starting at $126.50 up to the August high of $129.05.


Feeder cattle

Price action: October and later-deferred futures closed slightly higher and at the day's high in a very narrow day of trade.

Fundamental analysis: The narrow trading range for both live cattle futures and corn futures resulted in an even narrower trading range for feeder cattle futures. Traders already know the supply side for feeder cattle is tight, which is supportive of higher prices. The unknown is feed costs and the trade will get a better handle on that front from USDA's Crop Production and Supply & Demand Reports tomorrow morning.

Technical analysis: October futures continue to coil with the August low of $155.85 providing support and the August high of $160.70 offering resistance. A break through either of these could result in a sharp price breakout.

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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