Livestock Analysis (VIP) -- September 3, 2013

September 3, 2013 09:21 AM


Price action: Lean hog futures closed 20 to 55 cents higher after a choppy day of trade. Most contracts finished on or near session highs.

Fundamental analysis: Traders' bullish attitudes shined through in the hog market today as futures were able to muster mild gains and a high-range close despite a lack of bullish news. Forecasts calling for heat to rebuild the remainder of the week was mildly supportive as it will stress hogs, and the discount futures hold to the cash market was also supportive, but neither was a strong reason for traders to be buyers.

Cash hog bids were steady at most Midwest locations today as packers worked to fill kill lines coming out of the holiday weekend amid highly profitable margins. But building market-ready hog supplies should allow packers to get back up to speed on kills relatively quickly.

Technical analysis: October hogs are trading just below the August high at $88.30. The contract high of $88.90 will be tough resistance if the August high is cleared. Old resistance at $87.00 is initial support.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.



Live cattle

Price action: Live cattle futures traded in a choppy range and posted a close near the day's lows for nearby contracts. October live cattle closed down 60 cents while the December and February contracts posted slight losses. Deferred months posted slight gains thanks to bull spread unwinding.

Fundamental analysis: Traders continue to look for a seasonal pickup in demand, but they are concerned high beef prices may crimp the normal fall price upswing. The boxed beef market cooperated in the early going, posting slight gains for both Choice and Select boxed beef, but movement was limited.

Cash prices last week again trended steady with prices at $123 in the Southern Plains Friday. But that pegs October futures at a $3 premium to the cash, which will limit buying interest unless dressed beef prices rise.

Technical analysis: October futures trended lower for the third day in a row and settled below the the top of the Aug. 8 gap at $126.40. Filling the gap with a close under $125.42 1/2 would turn traders bearish. It will take a close above the August high at $129.05 to turn traders bullish.


Feeder cattle

Price action: Feeder cattle futures enjoyed gains for most of the day, but the market ended low-range with just slight gains in nearby contracts while 2014 contracts ended mixed.

Fundamental analysis: Feeder cattle futures found support from slumping corn futures and moved higher today. Meanwhile, feeder cattle numbers continue to slide, reducing supplies and supporting prices. But strength in the U.S. dollar index and an unimpressive close in the live cattle market encouraged profit-taking to wrap up the day.

Technical analysis: October futures traded higher today back to levels seen ahead of the the Aug. 26 price collapse to $155.85. October futures now sit at nearly a $2 premium to the cash index. There is resistance above $160.50 and support down to $155.85.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.


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