Livestock Analysis (VIP) -- April 22, 2013

02:28PM Apr 22, 2013
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Price action: May lean hog futures ended 27 1/2 cents lower while the rest of the market saw losses of 35 to 75 cents. This was a high-range close for nearby contracts and a low-range close for deferred months.

Fundamental analysis: Traders in the livestock complex reduced risk to start the week, with lean hog traders unwilling to add long positions ahead of a Cold Storage Report that was expected to show hefty frozen pork stocks for the end of March. Frozen pork stocks as of March 31 were even larger than expected (See "Evening Report" for more).

But selling interest in nearby contracts was limited by a steady cash market with scattered firmer bids and a strong start to the week for the pork product market. This morning the pork cutout value surged $2.14 on solid movement of 221.9 loads. This builds on last week's gains and signals retailers are preparing for spring grilling features.

Technical analysis: June lean hogs gapped lower on the open and though the contract ended high-range, it left a gap on the chart. Resistance stands at Friday's low of $89.87 1/2, closely followed by the $90.00 level. The April low of $88.22 1/2 is near-term support.

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 22 1/2 to 45 cents lower, which was a mid- to high-range close.

Fundamental analysis: Cattle futures were influenced by last Friday's Cattle on Feed Report, which concentrated the heaviest losses in the October contract forward. But those contracts pared losses into the close and finished high-range, suggesting the report data is now "in" the market. As a result, traders' attention should now shift to daily fundamentals.

Boxed beef prices were mixed this morning, while movement was relatively light. Unless the boxed beef market strengthens, it's unlikely packers will want to raise cash cattle bids this week given negative cutting margins.

Technical analysis: June live cattle futures are holding just above contract-low support while remaining in the steep downtrend from the winter highs. Until this downtrend is violated, the upside will remain limited, though the downside should also be limited.

Feeder cattle

Price action: Feeder cattle futures finished mixed with a slight downside bias, which was an upper-range close.

Fundamental analysis: Pressure on live cattle futures weighed on feeder cattle, though weakness in the corn market helped limit selling pressure and encourage the high-range close. Ideas the downside is overdone also limited selling pressure late.

Technical analysis: May feeder cattle gapped to a new contract low and left a small gap on the daily chart. That gap from $138.60 to $138.80 is initial resistance.

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.