Livestock Analysis (VIP) -- April 24, 2013

April 24, 2013 09:47 AM


Price action: Lean hog futures posted a high-range close, with the May through October contracts ending 70 cents to $1.42 1/2 higher. Deferred futures posted lighter gains.

Fundamental analysis: Lean hog futures were supported by indications retailers will soon aggressively feature pork. Traders are also hopeful the warmer weather that's in the forecast for next week will encourage consumers to light their grills. Strength in the pork market has lifted packers' profit margins and improved demand for cash supplies. Cash bids were steady to firmer today and similar bids are expected tomorrow as supplies are tightening.

But there is risk of profit-taking given the $7-plus premium May lean hog futures hold to the cash hog index. However, this premium structure signals traders believe the worst is behind in terms of demand.

Technical analysis: June lean hog futures posted a strong upside day of trade on the daily chart and even closed on last week's high of $91.00. 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 ended just off session highs with gains of 72 1/2 cents to $1.32 1/2.

Fundamental analysis: Live cattle futures benefited from growing expectations that grilling season is about to pick up, lifting the boxed beef and cash markets. Recent improvement in beef demand amid a more favorable weather outlook has spurred such ideas. This morning boxed beef prices were mixed, but movement surged. This should give feedlots some leverage in cash cattle negotiations, though heavier showlist estimates and negative packer profit margins will make this a tough sell. Last week trade took place at mostly $126 to $127.

Technical analysis: June live cattle penetrated near-term resistance at last week's high today, opening upside potential first to the March 21 spike high of $122.67 1/2 and then the April high of $124.50. Strong support remains at the contract low of $119.40.


Feeder cattle

Price action: The April feeder cattle contract, which expires tomorrow, ended unchanged for the day, but the rest of the market gapped higher on the open and settled with gains of $1.50 to $2.50 for the day.

Fundamental analysis: Buying interest in the April contract was limited as the contract remains at around a $1 premium to the cash index ahead of its expiration tomorrow. The rest of the market benefited from spillover from live cattle, optimism demand will soon improve and ideas the downside has been overdone (technically and fundamentally) in light of tight supplies. Traders brushed off firmer corn prices today.

Technical analysis: May feeder cattle futures gapped higher on the open and traded through and settled above psychological resistance at the $141.00 mark.

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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