Livestock Analysis (VIP) -- September 16, 2013

September 16, 2013 09:43 AM


Price action: Lean hog futures moved higher through the day and closed near daily highs amid bull spreading. The October and December contracts closed $1.42 1/4 and $1.22 1/4 higher, respectively. The February and later contracts finished 20 to 70 cents higher.

Fundamental outlook: Cash hogs saw steady to $1 higher bids today as slaughter supplies continue to surprise the market by coming in lower than expected. USDA reported last week's slaughter level unexpectedly fell 10.5% from year-ago. With the cash hog index rising, October futures surged as well.

Key going forward for the bulls is whether wholesale pork prices can move higher to move packer margins back in the black and/or whether both numbers and average weights rise with the more seasonal temperatures.

Technical outlook: Lean hog futures surged to new contract highs today, breaking away from the short consolidation area of the past six trading days. With December futures surging to a new contract high, the next level of upside resistance is at the $90.00 to $91.00 area on the weekly continuation chart. Support now rests at today's low, which sits just above the six-day consolidation area. A drop through that area, under $86.60 on the December chart, would both break the short-term uptrend line and suggest the recent runup 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 finished mixed after favoring the upside for much of the day. October and December live cattle closed slightly higher, while other contracts ended weaker.

Fundamental outlook: Traders started the week with bullish cash hopes after last week's cash trade was at steady $123 in the Plains. But with October live cattle already trading roughly $2.50 above the cash market, buying interest was limited today. And buying interest will likely remain limited as traders wait on cash trade to develop later in the week.

Boxed beef trade was sluggish this morning as prices were mixed and packers moved only 77 loads of product. Because packers have been reluctant to raise cash cattle bids, bullish cash hopes may be throttled back if the boxed beef market doesn't strengthen.

Technical outlook: October live cattle futures must push through the downtrend from the August and September highs to suggest the contract is working on a short-term low. That trendline intersects around $125.67 Tuesday. To the downside, last week's low at $124.80 is initial support, with stronger support at the August low of $124.12 1/2.


Feeder cattle

Price action: Feeder cattle futures finished slightly higher through the January contract, while farther deferred contracts ended narrowly mixed.

Fundamental outlook: Feeder cattle futures were choppy throughout the day, though weakness in corn allowed the most actively traded contracts to end higher. A lack of active buying interest in live cattle limited buying in feeders.

Technical outlook: Key near-term trading boundaries for October feeder cattle are clearly laid out at the August low of $155.85 and the August high at $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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