Livestock Analysis (VIP) -- September 5, 2013

September 5, 2013 09:56 AM


Price action: Lean hog futures gapped sharply higher on the open, but this quickly gave way to profit-taking. Futures ended split with October through February 7 1/2 to 27 1/2 cents higher and deferred contracts slightly lower.

Fundamental analysis: Technical buying propelled nearby contracts on the open after yesterday's strong performance and finish. But the run-up to new contract highs was met with profit-taking as traders are aware that seasonal tendencies indicate the end of this rally is likely near. Supplies typically expand seasonally into fall, weighing on the cash and futures markets. But heat this week and last week have tightened near-term supplies and kept the cash market steady to higher for much of the week.

A surge in pork movement yesterday and this morning added to bullish sentiment today.

Technical analysis: October lean hogs gapped higher on the open and hit a new contract high of $90.47 1/2 this morning before softening to fill the gap and ultimately settling mid-range. This contract high marks resistance, while former resistance at $88.30 is now 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: 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 faced pressure throughout the day. The October and December contracts ended 77 1/2 cents lower, while deferred months closed steady to 50 cents lower. This was generally a low-range close.

Fundamental analysis: Traders made an effort to reduce the premium nearby futures hold to last week's cash cattle trade as they wait for this week's action to begin. While expectations are for at least steady trade compared with last week's $123 action in the Southern Plains, the front-month contract is still more than $2 above this price.

Showlist estimates are down this week and beef movement has improved. But prices in the boxed beef market have been choppy. This morning Choice and Select boxed beef cuts slid, keeping worries about retailer resistance to high beef prices in mind.

Technical analysis: December live cattle bounced off $129.00 today, marking it as near-term support. Stronger support stands at the bottom of the Aug. 8 upside gap at $127.85. The August high of $130.80 is resistance.


Feeder cattle

Price action: Feeder cattle futures ended low-range with losses of 27 1/2 to 60 cents.

Fundamental analysis: Spillover pressure from live cattle set the stage for a lower day of price action in feeder cattle. In addition, while corn prices were under pressure today, traders in the feeder cattle market are keeping a close watch on how the corn crop finishes given tight calf supplies.

Technical analysis: October feeder cattle futures saw an inside day of trade, leaving support at the bottom of the Aug. 30 upside gap at $158.02 1/2 and resistance at the August high of $160.70.

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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