Livestock Analysis (VIP) -- September 18, 2013

September 18, 2013 09:53 AM


Price action: Lean hog futures began the day on the defensive but rallied over the noon hour and closed near their daily highs. October futures closed 75 cents higher. December futures finished 42 1/2 cents higher and farther deferred contracts were 40 to 65 cents higher.

Fundamental outlook: Traders are expecting the cash hog and wholesale pork markets to soon move lower seasonally. But the pork cutout value weakened only modestly in morning trade following a near-$2 rise on Tuesday. Meanwhile, movement remains strong in the face of higher wholesale pork prices -- 405 loads on Tuesday followed by 277 loads this morning. As long as cash fundamentals are supportive, selling interest will be light in futures.

Technical outlook: December lean hog futures attempted to test support at last week's low of $86.60 but prices surged to post their second-highest close for the life of the contract. Today's rebound adds additional strength to the $86.60 support zone. But a close above the contract high at $88.50 is needed to confirm the next leg higher is underway.

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 started the day under light pressure and firmed into the close to finish 10 to 55 cents higher.

Fundamental outlook: Early pressure came from concerns about lackluster beef demand, but tightening market-ready supplies helped to lift the market into the close. Additional support around midday came from firmer boxed beef values, as Choice improved 29 cents and Select rose 86 cents on solid morning movement of 130 loads. But cash sources say packers aren't interested in raising cash bids even though marketings are tighter in the Plains this week. As a result, cash cattle trade is expected to be delayed until later in the week.

Traders are also beginning to even positions ahead of Friday's Cattle on Feed (COF) Report, which is expected to show all categories below year-ago levels.

Technical outlook: October live cattle futures posted an inside day of trade on the daily chart. Near-term boundaries are: support at yesterday's low of $124.30 and resistance at last week's high of $125.85.


Feeder cattle

Price action: Feeder cattle futures favored a firmer tone throughout the day and closed near session highs with gains of 37 1/2 to 55 cents.

Fundamental outlook: Futures were supported by tight calf supplies, as traders look for the Placements category in Friday's COF Report to come in around 91.6% of year-ago levels. As a result, traders are comfortable with the slight premium nearbys hold to the cash index.

Technical outlook: October feeder cattle futures continue in the month-long choppy trading range and need closes above the August high of $160.70 to attract fresh chart-based buyers.

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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