Livestock Analysis (VIP) -- April 18, 2013

April 18, 2013 09:23 AM



Price action: Lean hog futures ended the day mixed, with May down 17 1/2 cents and June through August futures up 12 1/2 to 25 cents. Far-deferred futures ended steady to 25 cents lower.

Fundamental analysis: Price action was choppy today as traders weighed signs that pork demand is improving against lackluster demand for cash hogs. Packers say they are well-supplied for this week, but cash sources expect a firmer tone in the cash market to develop next week if profit margins continue to improve.

Therefore, all eyes will remain on the pork cutout market, which has improved recently amid a pickup in movement. But traders already have expected cash strength priced into the market, as nearbys hold a sizable premium to the cash index

Technical analysis: June lean hog futures posted a mid-range close, but managed to close above yesterday's high to post a slight upside day of trade on the daily chart. But to confirm a near-term low has been posted, the contract needs closes above the April high of $92.70. Support lies at the March 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 saw a choppy day of trade with nearbys favoring the downside for most of the session. April through August contracts closed 45 to 67 1/2 cents lower, while deferreds were narrowly mixed.

Fundamental analysis: Traders in the cattle market took a step back and booked some profits as boxed beef action this morning indicated that beef demand concerns have not yet been laid to rest. A cold, wet start to spring has delayed the start of grilling season and there is concern that economic headwinds could encourage traders to favor cheaper pork or poultry when grilling season does get underway. So far, the standoff between packers and feedlots continues after just light sales at $125 earlier this week -- down $2 from the week prior.

Selling interest, especially in deferred contracts, is being limited by expectations Friday's Cattle on Feed Report will reflect tightening supplies. But for now, the primary focus is on demand.

Technical analysis: June live cattle futures saw an inside day of trade and settled mid-range. The contract's high matched yesterday's, marking that $122.00 level as near-term resistance, followed by the March 21 high of $122.67 1/2. Support is at the contract low of $119.40.

Feeder cattle

Price action: April feeder cattle futures finished $2.07 1/2 cents lower while the rest of the market ended 32 1/2 to 85 cents lower.

Fundamental analysis: Early strength in the corn market led to the profit-taking in the feeder cattle market after strong gains yesterday. This, in turn triggered sell stops in the front month contract, which was also pressured by the premium it had held to the cash index with a week remaining to expiration. Today's action pushed it to a $1-plus discount to the index.

Technical analysis: May feeder cattle futures saw an inside day of trade, leaving near-term resistance intact at the top of the March 28 upside gap at $143.47 1/2 and support at the April low of $139.00, closely followed by the contract low 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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