Livestock Analysis (VIP) -- April 4, 2013

April 4, 2013 09:51 AM



Price action: Lean hog futures saw a choppy day of trade, but most contracts settled mid- to low-range with losses of 32 1/2 cents to $1.00. The April contract ended 10 cents higher for the day.

Fundamental analysis: The April lean hog contract benefited from steady to higher cash hog bids today and talk that even higher prices may be seen next week as market-ready hog supplies are tightening. But other contracts were pressured by concerns about the pork market. The pork market has failed to string together consecutive days of gains and movement has been light this week.

A chilly start to spring has delayed the usual spring meat rally as consumers fire up the grill. But some are optimistic that when temps do warm up, the pork's cheaper price tag will give it an advantage over beef.

Technical analysis: June lean hog futures finished near the midpoint of today's downside day of trade, but the contract remains within its uptrend since mid-March. Initial support is at the March high of 92.12 1/2, followed by the psychological levels of $91.00 and $90.00. Resistance stands at the top of the Feb. 14 downside gap at $94.05.

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 got off to a slightly firmer start, but this quickly gave way to profit-taking and bears had momentum on their side into the close. Futures ended 50 to 85 cents lower, which was near session lows.

Fundamental analysis: Cash cattle trade is thought to be largely complete after trade at mostly $128 on the Southern Plains yesterday. This was in line with trade a week ago. But ongoing worries about beef demand have made traders comfortable pushing nearby contracts to a discount to those cash prices.

Boxed beef prices have declined nearly $3 over the past week and movement has failed to pick up with the softer prices. This signals that a slow economy and higher taxes and gas prices are limiting consumer demand for beef. Chilly temps have also been a limiting factor for demand.

Technical analysis: June live cattle futures traded through and settled steady with near-term support at the March 6 spike low of $122.35. A close below that level would open downside risk to the contract low of $120.20. Monday's high of $124.50 is resistance.


Feeder cattle

Price action: Feeder cattle futures ended 62 1/2 to 70 cents lower after a very quiet day of trade.

Fundamental analysis: Strength in the U.S. dollar index and spillover from live cattle encouraged profit-taking in the feeder cattle market today as traders took advantage of the recent sharp upside correction. But as front-month contract is at more than a $5 premium to the feeder cattle index, additional upside potential will likely be limited unless corn prices soften notably.

Technical analysis: May feeder cattle futures tested but respected the wide gap left by Monday's open. The bottom of the gap at $145.07 1/2 is near-term support, while Monday's high of $147.70 is 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.

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