Livestock Analysis (VIP) -- Advice -- January 10, 2014

January 10, 2014 09:06 AM


Advice: Exit the 50% 1st-qtr. hog hedges in February lean hog futures. Our exit was $85.80 for a profit of $3.90.

Price action: Lean hog futures enjoyed gains for most of the session and ended 27 1/2 to 57 1/2 cents higher on the day, which was a mid- to high-range close. For the week, nearby contracts posted slight losses while deferred futures were little changed.

5-day outlook: Traders will remain on watch for signs of a seasonal low. While the cash hog index has inched higher thanks to back-to-back weeks of unfavorable weather, the product market has yet to give solid signs it has bottomed. Movement picked up this week, however.

30-day outlook: Cash hog and pork product prices typically soften in February and/or March following a brief rally in January, but current record-high hog weights could delay this pattern. Traders have displayed little urgency to narrow the premium February futures hold to the cash hog index for that reason.

90-day outlook: The porcine epidemic virus (PEDV) continues to spread across the country, and in its supply & demand update today, USDA said that while producers intend to farrow more sows the first half of 2014, the virus will likely slow growth in pigs per litter, keeping market-ready hog supplies tighter than would have otherwise been expected during 2014.

Hedgers: NEW ADVICE: Exit the 50% 1st-qtr. hedges in February lean hog futures. Our exit was $85.80 for a profit of $3.90.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.



Price action: Live cattle futures finished slightly higher in the front four contracts and slightly weaker in deferreds. Futures closed near their lows of the day but higher for the week. Feeder cattle settled just off session lows with losses of 50 cents to $1.17 1/2. Today's losses resulted in lower weekly closes for most contracts.

5-day outlook: Strong wholesale demand, as evidenced by the steady succession of record-high Select and Choice prices this week, should keep demand strong for cash cattle. The upswing in wholesale beef prices has trimmed cutting losses for packers but their margins remain in the red, which makes them reluctant bidders.

30-day outlook: Traders continue to fret over eventual consumer resistance to higher retail beef prices, but so far wholesale prices keep moving higher. The narrow spread between Select and Choice beef suggests export demand remains strong and supplies are tight. This should support cash cattle prices going forward. Futures will likely be unwilling to stray too far from cash prices paid in the Southern Plains.

90-day outlook: Consumer confidence will be critical going forward with wholesale beef prices on the rise. Friday's jobs report is worrisome as it shows little new job creation and more people leaving the work force. But if confidence of those still in the workforce rises, strong cash prices may be supported as supplies are expected to decline. The Cattle Inventory Report at the end of the month will provide direction on producer plans to rebuild herds and, thus, further trim available supplies.

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 1st-qtr. protein needs are covered in long March meal futures at $410.80.

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