Livestock Analysis (VIP) -- September 30, 2013

September 30, 2013 09:36 AM


Price action: Lean hog futures closed 20 cents to $1.50 lower with December futures posting the sharpest loss and summer 2014 contracts sporting the slimmest losses.

Fundamental analysis: Hog futures gapped lower in reaction to USDA's Quarterly Hogs & Pigs Report, which was viewed as bearish as nearly all categories came in higher than expected. But strength in the wholesale market tempered losses somewhat along with end-of-month position squaring.

In addition, the near-$5 discount October futures carry versus the cash hog index limited selling pressure in that contract somewhat. December futures bore the brunt of the negative reaction to USDA's snout count. It closed $1.50 lower.

Traders tended to ignore the basically steady cash hog market and wide packer profit margins as they continue to expect the delayed seasonal trend of higher supplies and weaker product demand during the fall. If hog runs continue to disappoint, cash prices could hold firm longer than expected.

Technical analysis: Futures gapped lower on the open and spent the remainder of the day trimming those gap losses. December futures were the weakest performer. Key near-term support is at the Sept. 20 low of $86.00. If prices plunge through that support, the next downside target is the Sept. 4 gap from $85.35 to $85.10. Today's wide gap now offers upside resistance.

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 closed 2 1/2 to 40 cents lower, which was near session highs.

Fundamental analysis: Futures faced profit-taking to start the week, but traders viewed price weakness as a buying opportunity. Today's high-range close sets the stage for followthrough buying tomorrow.

Pressure throughout the day was limited by news last week's cash cattle trade largely occurred at $126, which is up $2 from the previous week. This week's cattle showlist is smaller than week-ago, which raises expectations for at least steady cash trade later in the week. Traders will be gauging the beef market throughout the week for cash clues. Choice beef values were $1 higher this morning.

Technical analysis: December live cattle futures posted an inside day up on the daily chart. The contract has completed a 62% retracement of the decline from the December high to the spring low, which makes bulls' next target the 75% retracement level near $133.84. Support lies at the halfway point of the trading range near $130.17.

Feeder cattle

Price action: Feeder cattle futures were choppy today and ended 2 1/2 cents lower in the front-month contract. All other contracts ended 15 to 57 1/2 cents higher.

Fundamental analysis: Early profit-taking pressure gave way to fresh buying to signal traders' attitudes remain bullish given tightening calf supplies. But nearby futures are vulnerable to stepped up profit-taking as the October contract holds around a $7 premium to the cash index.

Technical analysis: November feeder futures posted a high-range close. Followthrough buying tomorrow and a close above contract-high resistance of $165.50 would have bulls targeting the $170.00 level as their next upside target.

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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