Livestock Analysis (VIP) -- September 12, 2013

September 12, 2013 10:07 AM


Price action: Lean hog futures opened mixed, traded higher and then slumped at the close of pit trading to finish near the day's low and mostly unchanged from the previous day. October futures finished down 10 cents while December futures closed 2 1/2 cents higher. Other contracts posted mixed closes ranging from 5 cents lower to 55 cents higher.

Fundamental analysis: USDA's Crop Production and Supply & Demand Reports dominated news flow today. Hog futures gained some support as corn futures slumped and then those gains were trimmed as corn futures trimmed post-report losses.

Meanwhile, traders got some negative news from the wholesale market today. The pork cutout value and cash hog prices have surged the past few weeks as the intense heat trimmed both market numbers and average weights. The rise has been contrary to the normal seasonal trend for lower cash hog and wholesale pork prices. But USDA reports the pork cutout value declined $1.38 in morning trade and that news has traders thinking the turn to cooler temperatures may also mean the start of the normal seasonal decline in prices.

Technical analysis: October futures failed on their test of contract highs and slumped to close on the steep uptrend line based off of the Aug. 23 settlement. A lower close Friday will break that uptrend line. The contract high area just above $91.00 continues to provide resistance. The Sept. 4 gap area running from $88.05 to $88.45 offers support.

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: Front-month October live cattle ended 22 1/2 cents lower, with the rest of the market posting marginal gains.

Fundamental analysis: Improvement in boxed beef market helped to limit losses throughout the day, although traders remain concerned that high prices will deter consumers from buying beef. Beef prices softened slightly this morning, but movement remained solid.

Traders are still waiting on cash cattle trade to begin and expectations are for steady to $1 lower trade tomorrow due to this week's slightly larger showlist. The bulk of cash cattle traded at $123 last week. October live cattle were pressured as they hold a premium to last week's cash trade.

Technical analysis: Near-term boundaries for December live cattle are support at the August low of $126.95 and resistance at the August high of $130.80. Bulls need closes above resistance to maintain their technical advantage.

Feeder cattle

Price action: Feeder cattle futures closed 37 1/2 cents to $1 higher, with deferred futures leading gains.

Fundamental analysis: Feeder futures were supported by weakness in the corn market, as traders reacted to the unexpected uptick in corn production predicted by USDA this morning. September feeder futures are trading at around a $1 premium to the cash index.

Technical analysis: October feeder futures briefly traded above yesterday's high but posted a low-range close with gains of 37 1/2 cents. Bulls' target is the August high of $160.70 and bears' target is the August low of $155.85.

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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