Livestock Analysis (VIP) -- September 17, 2013

September 17, 2013 09:50 AM


Price action: Lean hog futures were weaker throughout the day on profit-taking following yesterday's moderate to sharp gains. Hogs closed 10 cents to $1.15 lower, with nearbys leading the decline.

Fundamental outlook: Ideas the pork cutout market has posted a seasonal top inspired profit-taking today, although pork values firmed 45 cents this morning. Despite negative profit margins, the cash hog market was mostly steady to $1 higher today amid tighter-than-expected supplies. Some packers lowered bids due to negative margins today and early indications are more will be doing so tomorrow amid lighter demand.

Traders will continue to keep a close eye on the pork cutout market, as continued weaker values will signal supplies are increasing. This would secure a fundamental top in the market.

Technical outlook: December lean hog futures posted a downside day of trade on the daily chart, but finished off the daily low. Futures remain in the boundaries of the steep uptrend established from the August low. Support begins at last week's low of $86.60 and extends to the bottom of the early September 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: Live cattle futures traded lower through the day but came well off session lows in late trading to close in the upper third of the daily range. October futures finished 37 1/2 cents lower while December through October 2014 contract closed 50 to 60 cents lower.

Fundamental outlook: Futures were weaker initially as the trade was unwilling to take October futures higher in the face of its $2-plus premium versus the $123 cash price paid late week in the Southern Plains. However, the market continues to look for the seasonal upswing in both cash and futures prices. However, this morning boxed beef trade was again sluggish, though movement improved from yesterday morning.

Technical outlook: October futures slumped through support at yesterday's low and tested the August low of $124.12 1/2. The contract bounced off the test of this support and closed in the upper third of today's range. Futures need to push above the short-term downtrend line, which sits at around $125.60 on Wednesday, and close above Monday's high of $125.77 1/2 to give traders confidence a short-term low has been posted.


Feeder cattle

Price action: Feeder cattle were under pressure throughout the day with futures finishing near the day's lows. October feeder cattle finished down $1.62 1/2 and November futures closed down $1.65.

Fundamental outlook: Weakness in live cattle futures pressured feeder cattle futures prices throughout the day. Today's selloff saw the soon-to-expire September contract drop within 27 cents of the cash feeder cattle index. In addition, the $1.62 1/2 decline in October futures now has that contract at just a $1.55 premium to the index.

Technical outlook: October feeder cattle futures gapped lower and finished on the lows of the day. The decline tested support at the September low of $157.70, which held. The broader trading range extends from the August low at $155.85 to 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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