Livestock Analysis (VIP) -- April 17, 2014

02:51PM Apr 17, 2014
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Price action: Lean hog futures closed 62 1/2 cents to $1.65 higher through the August contract. October and December hogs finished 20 and 25 cents higher, respectively, while far-deferred contracts finished slightly lower. For the week, hog futures posted strong gains, led by summer-month contracts.

5-day outlook: This week's price action clearly signals a short-term low is in place. The high-range close for the week suggests followthrough buying is likely next week. Now that summer-month hog futures have erased the discount they held to the cash index, there isn't as much fundamental urgency to sharply push futures higher.

30-day outlook: The pork market is hinting that prices have dropped "far enough" to encourage packers to buy pork for grilling season features. But with pork prices still historically strong, pork (and beef) may lose out to chicken this summer.

90-day outlook: While hog supplies are their tightest during the summer months, we expect another wave of selling to be seen in the hog market. Instead of actively chasing a shrinking supply of market-ready hogs, many plants have already trimmed kill hours. More of that is likely as supplies tighten even further, which should limit strength in the cash market.

Hedgers: 50% of expected 2nd-qtr. hog marketings and 50% of expected 3rd-qtr. Hog marketing are covered in $126.00 June lean hog put options for $3.90.

Feed needs: Carry all corn-for-feed and meal risk in the cash market for now.



Price action: A combination of lower cash cattle trade and fund liquidation ahead of the extended Easter weekend weighed on live and feeder cattle futures. As a result of today's sharp price pressure, live and feeder futures posted losses for the week with a number of contracts breaking uptrending support lines today.

5-day outlook: Key on Monday will be whether traders return to the market to defend long positions, as followthrough from today's losses could trigger sell stops and a deeper price correction. While there are signs the beef market has posted a near-term low, traders are still concerned about packer demand for cash supplies given deep-in-the-red profit margins.

30-day outlook: April live cattle ended the week at a $2 discount to the cash market, which signals traders look for more near-term cash market weakness. But if retailer buying continues strong over the next few weeks, it would suggest consumers have once again accepted a rise in beef prices. But without improved economic growth, domestic demand will not perform like export demand, which is off to a very strong start for 2014.

90-day outlook: The supply situation will remain extremely tight well into 2015 due to the ongoing drought situation in the Southern Plains. The extended weather forecasts for dry conditions through the summer across the Plains does not bode well for herd expansion in that region.

Hedgers: Fed cattle producers have 50% of 2nd-qtr. marketings hedged in April live cattle futures at $144.20.

Feed needs: Carry all corn-for-feed and meal risk in the cash market for now, but be prepared to extend coverage on a price break.