LIvestock Analysis (VIP) -- April 16, 2013

April 16, 2013 09:35 AM


Price action: Lean hog futures closed 35 to 70 cents higher through the December contract, which was a mid- to high-range close. Far-deferred contracts finished narrowly mixed.

Fundamental analysis: Ideas Monday's sharp losses were overdone and a general price recovery across risky assets triggered a round of short-covering in lean hog futures today. But gains were limited to corrective buying amid ongoing demand concerns and weakness in the cash hog market.

Cash hog bids were steady to $1 lower at most Midwest locations today. While cutting margins moved into the black after strong price gains in the pork product market Monday, packer demand for cash hogs was limited as most plants are well supplied for the week.

Technical analysis: May lean hog futures filled Monday's downside gap on the daily chart, but the April 5 gap from $88.00 to $89.00 must be filled and the March/April double-top at $90.40 must be cleared before there are clear signs of a low. Monday's low at $86.00 is initial support, followed by the triple-bottom contract low at $84.50.

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 saw a choppy day of trade, but futures ended high-range with gains of 32 1/2 to 62 1/2 cents.

Fundamental analysis: Ideas the downside had been overdone and highly favorable outside markets helped short-covering to overtake followthrough selling today. In addition, traders have had a buy-the-fact reaction to the start of light cash cattle trade at $125 in Texas and Iowa yesterday, which is down $2 from the week prior but in line with front-month futures.

Buying interest outside of short-covering remains limited as beef demand concerns linger. Thus far this week, boxed beef prices have been choppy and movement has been relatively light, signaling the seasonal grilling rally has yet to begin. The cold, wet forecast does not indicate improvement is imminent.

Technical analysis: June live cattle futures briefly dipped below psychological support at $120.00 today, but the market settled well above that level. The next level of chart support is the contract low of $119.40. Resistance is layered from the March 21 spike high of $122.67 1/2 to the April high of $124.50.

Feeder cattle

Price action: Feeder cattle futures settled just off session highs after a mixed day of trade with gains of 2 1/2 to 35 cents.

Fundamental analysis: Feeder cattle futures initially saw some followthrough selling after the market posted heavy losses yesterday. But this eventually gave way to some technical short-covering as nearby contracts dipped into technically oversold territory according to the 9-day Relative Strength Index yesterday. Sharp weakness in the U.S. dollar index and spillover from live cattle also gave bulls a slight advantage. Additional short-covering is needed to pull some contracts out of oversold territory.

Technical analysis: May feeder cattle futures posted an inside day up on the daily chart, and the contract has a long ways to go to signal a low is in place. The contract must first close the March 28 upside gap at $143.47 1/2 to signal a reversal is in the works. The contract remains near contract-low support of $138.90.

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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