Livestock Analysis (VIP) -- April 17, 2013

April 17, 2013 09:34 AM


Price action: Lean hog futures opened under pressure, but the market firmed this morning and extended gains into the close. Futures settled near session highs with gains of 95 cents to $1.32 1/2, with nearby contracts leading to the upside.

Fundamental analysis: Lean hog futures enjoyed some light, corrective short-covering early this morning as the pork cutout value firmed yesterday on decent movement. The market later extended these gains after the pork cutout value rose again this morning and movement was strong. This supports ideas the seasonal spring grilling rally may finally be getting started. Spillover from live cattle and ideas the downside has been overdone added support.

This kept attention away from steady to lower cash hog bids today as packers are well supplied on near-term needs. Today's rebound was especially impressive considering a rocketing U.S. dollar index and a plummeting stock market.

Technical analysis: June lean hog futures posted an impressive bullish reversal, halting the decline since early April and settling above psychological resistance at $90.00, turning that price into near-term support. Bulls' next target is the March high of $92.12 1/2 followed by 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 rallied into the close to finish $1.05 to $1.50 higher. The high-range close should give bulls momentum heading into tomorrow's open.

Fundamental analysis: Futures were supported by expectations retailer buying of beef would soon ramp up. This morning's boxed beef report helped propel that thought, as Choice values rose $1.51 and Select was up 86 cents on strong morning movement of 138 loads.

Meanwhile, traders are still waiting on cash cattle trade to pick up after light trade began late Monday in Texas and Iowa at $125, which was $2 lower than last week. Packers offered similar bids today, but feedlots are waiting on higher prices -- especially after today's strength in the futures market.

Technical analysis: June live cattle posted a strong upside day of trade on the daily chart but the contract still has some work to do to signal a near-term low has been posted. Resistance stands at $122.86, which marks a 25% retracement of the decline from the December high to Monday's low. To signal a low has been posted, the contract needs to complete a 38% retracement at $124.76.

Feeder cattle

Price action: Feeder cattle futures finished 85 cents to $1.42 1/2 higher in all but the front-month April contract, which ended 42 1/2 cents lower.

Fundamental analysis: Feeder futures enjoyed spillover from live cattle, but upside potential for nearby contracts was limited by firmness in the corn market. April futures are trading near in line with the cash index, which will limit price action for the contract again tomorrow.

Technical analysis: May feeder futures are trading at more than a $4 premium to the cash index, which signals traders expect tightening supplies to support prices this spring. Near-term boundaries for the contract are support at the contract-low at $138.90 and resistance at the April high of $147.70.

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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