Livestock Analysis (VIP) -- April 11, 2013

April 11, 2013 09:41 AM


Price action: Lean hog futures enjoyed gains most of the day but the market softened after midday and ended at or near session lows and narrowly mixed.

Fundamental analysis: The lean hog market was supported most of the day by improvement in the pork market yesterday as well as steady to higher cash hog bids today thanks to travel disruptions in northwest areas of the Midwest. But as the pork market has struggled to string together consecutive days of gains in recent months, traders are taking a prove-it attitude. Therefore, they took advantage of early gains by booking profits heading into the close.

Packers are dealing with negative margins, which could limit cash market strength once transportation is back to normal.

Technical analysis: June lean hog futures were unable to sustain buying interest above the psychological $90.00 level and closed below it for a third consecutive session, marking it as tough near-term resistance. To the downside, support is layered from the March 6 low of $88.90 to the 2013 low of $87.20.

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

Feed needs: All feed coverage has been lifted. Carry all risk in the cash market for now.



Live cattle

Price action: Live cattle futures enjoyed slight gains for most of the day and futures ultimately settled 17 1/2 to 65 cents higher. This was good for a mid-range close.

Fundamental analysis: Cattle futures saw corrective short-covering today amid ideas yesterday's sharp losses were overdone. Cash cattle trade got off to a disappointing start at $127 yesterday in Texas and Kansas and so far just light sales have taken place in northern locations at $127.50 to $128 today. But nearby futures are at a discount to these prices, opening the door for additional short-covering.

A pickup in boxed beef movement this morning could signal a much overdue seasonal rally is getting started, but to build confidence in this idea, prices must also rise.

Technical analysis: June live cattle futures saw an inside day of trade. Yesterday's contract low of $119.95 is support, while resistance is layered from the top of the mid-March downside gap at $123.60 to the April high of $124.50.


Feeder cattle

Price action: Feeder cattle futures faced pressure again today and settled low-range with losses of 35 cents to $1.27 1/2.

Fundamental analysis: After posting sharp losses yesterday, feeder cattle futures saw followthrough selling today as ongoing concerns about beef demand translate to limited demand for feeder calves. Strength in the corn market added to the negative tone as this boosts feed costs for producers.

After today's heavy loss, the April feeder cattle contract is now trading at a slight discount to the cash index. But deferred contracts remain at a premium to the index, signaling the market expects feeder cattle to put in a low sometime in the near future as supplies are tightening.

Technical analysis: May feeder cattle futures closed the wide March 28 upside gap at $142.15 today, opening up downside risk to the psychological $140.00 mark, closely followed by the the contract low of $139.82 1/2. The contract must fill the April downside gaps at $144.32 1/2 and $145.92 1/2 to signal a reversal is in the works.

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: All feed coverage has been lifted. Carry all risk in the cash market for now.


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