Livestock Analysis (VIP) -- April 8, 2014

April 8, 2014 09:54 AM


Price action: Lean hog futures spent today under sharp pressure with many contracts falling the $3.00 limit at times. While no contracts finished limit down, many closed near-limit lower. The May through October contracts closed down $2.62 1/2 to $2.92 1/2. The lead-month April contract finished $1.72 1/2 lower while the December and February contracts closed down $1.80 to 82 1/2 cents, respectively.

Fundamental analysis: The selloff in futures continued today as cash prices moved lower on weaker packer demand and a slowdown in wholesale pork movement. Cash hogs were $1 to $2 lower today as packers have reduced kill hours to push up wholesale prices and reduce losses as cutting margins are in the red.

Meanwhile, traders note continuing weakness in the wholesale pork market despite a 75-cent upturn in the pork cutout value this morning. The concern is movement and only 159.12 loads moved this morning. This follows movement of only 258 loads Monday.

Technical analysis: June lean hog futures closed near their daily lows today. The contract appears headed for a test of uptrending support, which intersects just below $112.00 Wednesday and rises around 15 cents per day. The top of last Friday's gap at $122.70 is tough near-term 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 saw choppy to lower trade at times today, but bulls had the advantage at the close. Futures ended in the upper half of their daily trading range with gains of 30 to 90 cents in all but the August contract that ended 2 1/2 cents lower.

Fundamental analysis: While news Japan and Australia reached a trade agreement that could shift some beef export business away from the U.S. initially pressured the live cattle market, the fact that any trade implications are likely a long ways down the road shifted attention back to market fundamentals. While most expect lower cash cattle trade relative to last week's $148 to $150 action in the Plains, futures are well below these levels, signaling some upside corrective trade may be warranted.

Also supportive today was improvement in the boxed beef market this morning and marked weakness in the U.S. dollar index. Choice and Select cuts firmed 69 cents and $1.68, respectively, though movement stayed light at 79 loads.

Technical analysis: June live cattle futures have tested but settled above the January high at $134.72 1/2 the past three days, marking this level as strong support. The contract settled just below near-term resistance at the March 21 low of $135.30. A move through this price would open upside potential to the early March high of $138.05.


Feeder cattle

Price action: Feeder cattle futures opened under pressure, but the market improved as the day progressed. Feeders closed 80 cents higher in the front-month contract and 2 1/2 to 32 1/2 cents higher through the September contract.

Fundamental analysis: Gains in the live cattle market helped the feeder cattle market to buck firmer corn prices and post gains for the day. The market remains in an uptrending pattern.

Technical analysis: For May feeder cattle futures, uptrending support drawn off the lows since February intersects around $177.77 tomorrow. Initial resistance for the contract is at $180.00, followed by the contract high of $180.60.

Hedgers: Fed cattle producers have 50% of 2nd-qtr. marketings hedged in April live cattle futures at $144.20.

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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