Livestock Analysis (VIP) -- April 28, 2014

April 28, 2014 09:35 AM
 

Hogs

Price action: Lean hog futures closed narrowly mixed, resulting in anywhere from a low-range to a high-range close for the day.

Fundamental analysis: Lean hog futures fought off pressure from a weaker cash hog market. Uncertainty with the impact of the porcine epidemic diarrhea virus (PEDV) on market-ready hog numbers as well as the seasonal tightening of supplies into summer is keeping traders comfortable with summer-month hog futures at a premium to the cash index.

Cash hog bids were as much as $2 lower today amid limited packer demand. While market-ready supplies are tightening, packers are working with negative margins and are therefore unwilling to actively bid for cash hogs. That's unlikely to change unless the product market strengthens and pushes margins back into the black.

Technical analysis: Short-term trading boundaries for June lean hog futures lie at the April 9 low of $115.92 1/2 and last week's high of $127.70. A breakout from this range will determine if the next move is a challenge of the contract high or the next leg down in the correction from the contract high in March.

Hedgers: 50% of expected 2nd-qtr. hog marketings and 50% of expected 3rd-qtr. Hog marketing are covered in $126.00 June lean hog put options for $3.90.

Feed needs: Carry all corn-for-feed and meal risk in the cash market for now.

 

Live cattle

Price action: Live cattle futures finished 5 to 92 1/2 cents higher with deferred contracts leading gains. Futures tended to post midrange closes.

Fundamental analysis: Cattle futures firmed through the trading day on the tighter-than-expected numbers in Friday's Cattle on Feed Report. But the steady to weaker cash cattle trade posted on Friday has traders reluctant to push prices higher.

The wholesale trade is providing some concern, as well. Choice beef was down 9 cents this morning and Select beef was off 58 cents. But movement improved to 98 loads. The result is a return to the plus column for packer cutting margins, which may give the cash market a little more solid footing this week. Today's estimated federally inspected slaughter is 114,000 head, up from last week's 103,000 head and down from 119,000 head a year ago.

Technical analysis: June live cattle futures ran into profit-taking today as it neared resistance at the $137.50 to $137.55 resistance area consisting of the April 1, 3 and 4 highs. But support appeared Thursday's high of $136.60. Futures are about $1 above support at the 14-day moving average. The $135.00 area offers additional support.
 

Feeder cattle

Price action: Feeder cattle futures closed $1.10 to $1.77 1/2 higher, closing high-range. Futures posted new contract highs.

Fundamental analysis: Feeder cattle futures surged on increasing evidence of tight supplies coming out of Friday's Cattle-on-Feed Report. Futures also found support from the stronger live cattle futures as well as weakness in the U.S. dollar index.

Technical analysis: August feeder cattle futures posted a new contract higher and settled at a new high. Support is near the $184.00 area, with heftier support around $183.00, which coincides with the 14-day moving average.

Hedgers: Carry all risk in the cash market for now.

Feed needs: Carry all corn-for-feed and meal risk in the cash market for now, but be prepared to extend coverage on a price break.

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