Livestock Analysis (VIP) -- September 6, 2013

September 6, 2013 09:34 AM


Price action: Lean hog futures finished 67 1/2 to $1.50 higher through the February contract today. Farther-deferred futures closed narrowly mixed. For the week, lean hog futures extended the price rally with fall- and winter-month contracts moving to new contract highs.

5-day outlook: Virtually all of the discount October hogs once held to the cash index has been erased, while December and February contracts are trading at just a slight discount. That signals attitudes are bullish. Therefore, the price rally could be extended next week, though the market is vulnerable to profit-taking as futures are now overbought.

30-day outlook: The seasonal build in hog/pork supplies has been delayed by unseasonable late-summer heat, which is trimming kill weights and slowing marketings. At the same time, post-Labor Day pork demand has been strong. But as supplies eventually build seasonally, there will be greater pressure on demand to chew through supplies.

90-day outlook: The strong runup in December and February lean hog futures will eventually be an opportunity to heavy up 4th-qtr. hedges and to add 1st-qtr. hedge coverage. But wait on buying interest to fade before adding and extending hedge coverage.

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.



Price action: Live cattle futures were choppy today and ended mixed as the market waited for cash cattle trade to begin. Futures posted slight to moderate losses for the week.

5-day outlook: Cash cattle trade had yet to get underway as of today's close, which means the market will likely factor this into prices early next week. Bullish cash market expectations faded as the week progressed amid beef demand concerns. Nevertheless, futures ended the week at more than a $2.50 premium to cash prices the week prior.

30-day outlook: The seasonal tendency is for cattle futures to firm into fall, but until demand concerns ease, just a slow grind higher is expected. Strength in the U.S. dollar index and the health of the U.S. economy will be influential of this.

90-day outlook: Cattle supplies will continue to tighten, which should keep the cattle market pointed toward a 10-year cycle high in 2014. Traders will continue to watch monthly Cattle on Feed Reports for signs producers are holding back heifers for breeding.

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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