Livestock Analysis (VIP) -- September 9, 2013

September 9, 2013 09:57 AM


Price action: Lean hog futures got off to a mixed start, but most contracts firmed as the day progressed. October hogs settled marginally lower, while the rest of the market ended steady to 62 1/2 cents higher, with the December contract leading gains.

Fundamental analysis: Lean hog futures initially saw some light profit-taking amid uncertainty about how much upside is left in this market, which has bucked the seasonal tendency for a decline in prices as supplies build. Recent and ongoing heat in the Midwest has limited hog weight gains in recent weeks, tightening nearby supplies and lifting the cash market.

In addition, pork movement has been strong since Labor Day, signaling retailers are planning fall pork features. This morning, the pork cutout value firmed $1.14 and movement was a solid 186.9 loads. All of this encouraged cautious buying in lean hog futures today.

Technical analysis: October lean hogs hit a new contract high of $91.10 today before pulling back and posting slight losses for the day. This is initial resistance, after which resistance is layered every 50 cents higher starting at $91.50. Psychological support stands at $90.00.

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 favored a weaker tone through the day and finished 5 to 32 1/2 cents lower through the April contract. Far-deferred futures ended mixed.

Fundamental analysis: Disappointing cash cattle trade late last Friday and ongoing demand concerns weighed on cattle futures to open the week. With futures trading at a premium to the cash market, it's going to be hard to drum up near-term buying interest as traders wait on this week's cash trade to develop.

Showlist numbers are up from week-ago in Nebraska, Kansas and Texas, which suggests packers will again be reluctant to raise cash cattle bids in the Plains, especially if the boxed beef market doesn't show strength. While boxed beef movement was solid at 130 loads this morning, it came amid moderately lower prices.

Technical analysis: Initial support for October live cattle futures lies at last week's low at $124.90. If that support is violated, it would open the downside to the August low at $124.12 1/2. To the upside, tough resistance stands around the $127.00 level and extends to the August spike high at $129.05.


Feeder cattle

Price action: Feeder cattle futures closed mildly firmer in most contracts, with January feeders the exception.

Fundamental analysis: Weakness in the corn market allowed feeders to shake off spillover pressure from live cattle. But traders are hesitant to actively buy feeders based on corn weakness as they fear the corn crop isn't finishing strong amid the late-season heat, which could trim yields and crop quality.

Technical analysis: October feeder cattle are holding within the short-term trading boundaries from $155.85 to $160.70. A breakout from that range would trigger the next price move on the daily price chart.

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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