Livestock Analysis (VIP) -- April 2, 2014

April 2, 2014 10:18 AM


Price action: Lean hog futures saw a widely mixed day of trade, but bears had the clear advantage at the close. Summer-month contracts led to the downside with near limit losses, while other contracts were mixed.

Fundamental analysis: Heavy pressure and fund liquidation in summer-month lean hogs spilled over to the spring contracts today. Recent high volatility in the market is a strong signal a top is near or in place. This along with strength in the U.S. dollar index gave traders incentive to book profits and exit the market today.

Selling in April and May lean hogs was limited by the discount they maintain to the cash hog index. Also helping to limit pressure on these markets was an uptick of $1.11 in the pork cutout value this morning and a 240.88-load surge in movement.

Meanwhile, the cash hog market was mixed today. While supplies remain tight, some plants have reduced kill hours in response.

Technical analysis: June lean hogs faced heavy pressure today and settled near limit-lower. This sets the stage for a test of the late March low of $123.00. The $130 mark is now resistance.

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 15 to 65 cents higher in narrow trading. The exception was the lead April contract, which closed 15 cents lower.

Fundamental analysis: Traders started the day expecting lower cash cattle bids as the week progresses. Weakness in the wholesale beef market yesterday had traders leaning to the negative side. But this morning's wholesale beef trade came in positive with Choice boxed beef $1.31 higher and Select beef $1.34 higher. Adding to the positive story was strong movement of 96 loads. Slaughter today is estimated at 117,000 head, which is down from 118,000 head of a week ago and down from 119,000 from a year earlier.

Technical analysis: June live cattle futures posted an inside day. The contract closed near their daily highs, setting up a re-test of resistance at yesterday's high of $137.75. Today's price gains lifted June futures up and away from the February-March short-term uptrend line. The winter uptrend line still offers uptrending support at around $134.50. The gap above Monday's high at $137.85 to $138.12 1/2 is the first level of resistance.


Feeder cattle

Price action: Feeder cattle futures closed moderately to sharply higher with the far deferred March 2015 contract up 30 cents and the November contract up $1.47 1/2. The May contract closed $1.20 higher.

Fundamental analysis: Small to moderate gains in live cattle futures tended to support feeder cattle futures in early trading. Feeder cattle futures added to those gains as corn futures slumped throughout the day. April feeder futures rose 77 1/2 cents, effectively erasing all but 30 cents of its discount to the cash index.

Technical analysis: May futures posted an inside day, finding support at Tuesday's low of $176.37 1/2 and resistance at Tuesday's high of $178.77 1/2. Futures finished near the highs of the day, which suggests futures will test resistance at yesterday's high tomorrow. The first layer of support now rests at Tuesday's low.

Hedgers: Fed cattle producers are long April $136.00 put options at $1.325 covering 1st-qtr. and 50% of 2nd-qtr. marketings. The April $144.00 call options that we sold for $1.525 were exercised into a short futures position, meaning we are effectively hedged at $144.20 (the strike price plus the 20 cents we made on the initial sale of these calls compared to what we spent on the puts).

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.

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