Livestock Analysis (VIP) -- September 23, 2013

September 23, 2013 09:28 AM


Price action: Lean hog futures finished slightly to moderately higher in light corrective buying. October finished 12 1/2 cents higher and December closed 35 cents higher.

Fundamental analysis: Futures followed the lead of live cattle and favored the plus side today. Meanwhile, buying was limited as the cash market was mixed amid variable demand. Traders continue to look for a seasonal upswing in hog numbers and an accompanying decline in cash hog prices. But the surge in numbers has failed to appear, so far, making traders reluctant to pressure October futures lower in the face of an $8 discount to the cash hog index.

Pork cutout values have tended to surprise the market, but some weakness was noted today. Movement remains positive, however.

Technical analysis: December live hog futures opened firmer, found support above Friday's low of $86.00 and bounced higher. But they quickly ran into selling pressure in the gap area left Friday. December futures probed the gap slightly but will have to close above $87.20 to fill the gap and boost trader confidence on the buy side.

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 gapped higher on the open and most contracts settled high-range with gains of 55 to 75 cents through the April contract, while deferred months finished steady to slightly higher.

Fundamental analysis: There was no shortage of bullish data for the cattle market to rally around today. For one, the Cattle on Feed Report, which was released after the market closed on Friday, showed all categories on the bullish side of the average pre-report guesses. This confirmed ideas tightening supplies will propel the market to a 10-year cycle high in 2014.

Also, cash cattle trade took place at mostly $1 higher prices in the Southern Plains late last week. Strength in the boxed beef market to start the week and tighter showlist estimates are early signals cash cattle trade may take place at higher prices again this week.

Technical analysis: October live cattle gapped higher on the open but the contract failed to move through tough resistance in the $126.90 to $12.95 area. This level stopped multiple rally attempts in July. Near-term support is at the bottom of today's gap at $126.15.

Feeder cattle

Price action: Feeder cattle futures enjoyed strong buying interest to start the week and the market ended 52 1/2 cents to $1.87 1/2 higher for the day.

Fundamental analysis: Feeder cattle futures benefited from Friday's confirmation of tight calf supplies. Indeed, Placements for the month of August hit their lowest level on record (since 1996). This along with expectations for a record-large corn crop this year propelled the feeder cattle market to start the week. Gains in the front-month contract were limited by efforts to keep it in line with the cash index.

Technical analysis: October feeder cattle futures continue to make their way toward resistance at the August high of $158.50. Major chart support stands at the August low of $154.10.

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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