Livestock Analysis (VIP) -- April 24, 2014

02:58PM Apr 24, 2014
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Price action: Hog futures traded lower for much of the day, closing 5 cents to $1.07 1/2 lower in the May through October contracts with May leading declines. The December and February 2015 contracts finished 10 cents higher. June futures closed near their lows for the day.

Fundamental analysis: Lean hog futures traded defensively on profit-taking following yesterday's sharp gains. Cash hog bids were mostly steady but packer bidding was trimmed due to the widening negative cutout margin. The wholesale pork market provided limited direction as the cutout was down just six cents in morning trading, but movement was a relatively light 148.33 loads.

Traders still are absorbing Tuesday's surprising Cold Storage Report, which showed far less pork in storage than expected. With uncertainty over hog supplies going forward due to the porcine epidemic diarrhea virus (PEDV), traders are reluctant to press futures aggressively lower.

Technical analysis: June hog futures poked above the top of the uptrending channel and tested resistance starting near $128.00, which triggered profit-taking. The contract found support at $125.25 with the bottom uptrend line of the channel providing additional support at $122.37 tomorrow. The $128.85 to $127.77 1/2 gap area left March 31 serves as an upside target.

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.


Live cattle

Price action: Live cattle futures closed 22 1/2 to 75 cents higher, with the June contract leading gains. Futures finished near their highs of the day.

Fundamental analysis: Live cattle futures traded defensively through much of the day but surged in the final 90 minutes of trading to post gains on the day. Position evening ahead of tomorrow's Cattle-on-Feed Report also contributed to the late gains. News of even-with-last-week cash cattle prices in the Northern Plains yesterday provided some buying support through the day as futures still hold a wide discount to the cash market.

The boxed beef market provided supportive news as Choice boxed beef came in $1.42 higher and Select beef $1.57 higher this morning. Movement is seen as light at 55 loads, however. But the recent upswing in wholesale beef prices coupled with the easing in cash beef prices have sharply reduced packer cutout margins from losses in excess of $100 per head to losses of around $11 per head. With showlists estimated tighter in the Southern Plains, traders are looking for steady prices and those ideas lifted futures near the end of trading.

Slaughter is pegged at 118,000 head today versus 110,000 head a week ago and 123,000 head a year ago.

Technical analysis: June live cattle futures posted a higher low and ended just off their highs of the day, finishing above the 14-day moving average for the first time since April 3. This makes the $134.00 to $134.75 area support. Resistance rests at $136.20 to $137.50. Today's trade opened on the November to February uptrend line, traded under it and bounced higher as selling pressure faded. That uptrend offers support at $135.30 Friday.

Feeder cattle

Price action: Feeder cattle futures were stronger throughout the day, closing 97 1/2 cents to $1.65 higher with the August contract leading gains. Futures closed near their highs of the day.

Fundamental analysis: Feeder cattle futures traded strong through the day on the continuing tight supply situation in overall calf supplies. The lingering drought in the Plains and Texas continues to limit the ability of cow-calf operators to boost calf supplies. The surge in live cattle futures in late trading added to today's gains along with position evening ahead of tomorrow's USDA cattle count.

Technical analysis: August feeder cattle futures scored a new high today, setting up the $181 to $183 area as support. The next level of support is at the long-term uptrend line at about $177.50 tomorrow.

Hedgers: All 2nd-qtr. hedges have been exited. Carry all risk in the cash market for now.

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.