Livestock Analysis (VIP) -- September 26, 2013

September 26, 2013 09:39 AM


Price action: Lean hog futures gapped lower on the open and faced pressure throughout the day. The market did however finish high-range with losses of 90 and 87 1/2 cents, respectively in the October and December contract. Deferred months closed steady to 45 cents lower.

Fundamental analysis: The lean hog market has recently given signs a top may be in place and the cash market has softened this week, which encouraged traders to take advantage of the recent rally by booking profits today. The cash hog index has declined the past two days as packers have trimmed kill hours to account for tighter supplies. Cash hog bids were steady to lower today. The pork cutout value softened this morning, though movement was decent. This is another sign hogs may be returning to a more seasonal pattern.

But position evening ahead of the Quarterly Hogs & Pigs Report Friday that is expected to show all hogs and pigs as of Sept. 1 at 98.6% of year-ago levels, should limit selling pressure through week's end.

Technical analysis: October lean hogs posted a downside day of trade but the high-range close means one can't rule out a test of the bottom of the yesterday's island top at $93.22 1/2. The contract found support at last week's high of $92.20 today.

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 were choppy today but firmed into the close to finish up 15 to 45 cents to keep the near-term trend clearly pointed higher.

Fundamental analysis: Early pressure came on profit-taking, but traders viewed early weakness as a buying opportunity given recent positive fundamental news. Friday's Cattle on Feed Report reminded the market of the tightening supply situation and Monday's Cold Storage Report reflected demand was better than feared. This has given traders more confidence about extending long positions.

Traders are still waiting on cash cattle trade to begin and general expectations are for $1 to $2 higher trade tomorrow afternoon with last week's $124 trade.

Technical analysis: October live cattle futures gapped slightly lower on the open, then filled the gap and extended gains. The high-range close gives bulls the upper hand heading into tomorrow's open. Bulls' next objective is the August high of $129.05.


Feeder cattle

Price action: Feeder cattle futures posted strong gains of 87 1/2 cents to $1.45 and posted a high-range close.

Fundamental analysis: The path of least resistance continues to be higher as traders factor in tightening calf supplies and expect corn prices to drift lower as harvest progress picks up. September feeder futures are trading at around a $2 premium to the cash index. The October contract, which will soon be the lead-month contract, is trading at around a $7 premium to the index, which could trigger some profit-taking in the near-term.

Technical analysis: October feeder cattle futures gapped higher on the open and are closing in on contract-high resistance of $164.75.

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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