Livestock Analysis (VIP) -- April 15, 2013

April 15, 2013 09:19 AM


Price action: Lean hog futures finished off session lows but still down $1.10 to $1.37 1/2 in the 2013 contracts, with far deferred contracts posting losses between 65 and 95 cents.

Fundamental analysis: Sharp weakness on outside markets, such as gold futures and the Dow Jones Industrial Average, created a "risk-off" atmosphere in the commodity markets today. Gold futures weakened on concerns about the global economy, which heightens concerns about pork exports.

Adding to the negative tone were weaker cash hog bids. Packers have scaled back this week's kill schedule due to negative profit margins and tighter market-ready supplies. In order to secure a near-term low, pork demand needs to improve to signal retailers are preparing for grilling features. May lean hog futures are trading at around a $4 premium to the cash index, which opens additional near-term downside risk for nearby futures.

Technical analysis: June lean hog futures posted a downside day of trade on the daily chart, but closed off the daily low. Today's low of $88.22 1/2 is initial support, followed by the March low of $87.20. To signal a near-term low has been posted, the contract needs to climb back above the April high of $92.70.

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 closed 80 cents to $1.65 lower, which was well off session lows in all but far-deferred contracts.

Fundamental analysis: Fundamentals were brushed aside today in favor of strong risk aversion. Risky assets were broadly sold off today after disappointing Chinese economic data overnight. But while there wasn't a fundamental focus today, the macro-economic concerns will keep traders worried about beef demand.

If macro-economic concerns ease -- and that's a big if -- traders will shift their attention to cash cattle expectations for the week. Given demand concerns and negative cutting margins, packers won't likely be willing to raise cash cattle bids in the Plains.

Technical analysis: June live cattle futures posted a new contract low and contract-low close today. Support now comes at psychological levels, starting at $119.00.

Feeder cattle

Price action: Feeder cattle futures closed $1.12 1/2 to $1.57 1/2 lower, which was well off session lows and near session highs in some contracts.

Fundamental analysis: Feeder cattle futures also got caught up in the broad risk aversion today. Sharp losses in the corn market did little more than help trim losses late.

Technical analysis: May feeder cattle stopped 10 cents shy of contract-low support at $138.90. A drop below that level would open the door to a fresh wave of chart-based selling.

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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