Livestock Analysis (VIP) -- April 9, 2014

April 9, 2014 10:12 AM


Price action: Lean hog futures closed sharply higher to limit up through the August contract, while far-deferred futures posted lesser gains.

Fundamental analysis: Price action was extremely volatile in the hog market today as hefty overnight losses turned into strong gains today. There was no fundamental backing for the sharp reversal. In fact, the cash hog market remained under pressure as packers are trimming kill hours in an attempt to boost margins. But given uncertainty with the porcine epidemic diarrhea virus (PEDV) situation, traders don't want to get futures too far below the cash market. The big discount futures hold to the cash index contributed to today's price reversal.

Fund buying was also a factor into today's dramatic price turnaround. Fund activity will be something to watch near-term as they have recently been active sellers on the sharp corrective pullback from the all-time high.

Technical analysis: June lean hog futures posted a bullish reversal and finished on the session high. That sets the stage for followthrough buying Thursday and a potential short-term bottom. Today's low at $115.92 1/2 is key near-term support.

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: After slipping lower initially, spring- and summer-month live cattle contracts moved higher, closing 35 to 62 1/2 cents higher. The October contract closed steady, while December live cattle ended steady and far-deferred months closed up slightly.

Fundamental analysis: Live cattle futures edged higher after initial weakness as traders looked to narrow the discount nearby contracts have versus the $148 to $150 cash price paid in the Southern Plains last week. While traders look for cash trade to slip again this week, the discount is still $2-plus versus rumored early offers of $146. Packers remain reluctant to bid up as they continue to cut well in the red, losing $100 a head and more.

The wholesale beef market provided mixed news today. Choice and Select boxed beef fell $1.79 and $1.12, respectively, this morning. But movement was solid at 137 loads, signaling prices may be nearing "value" levels. Slaughter today totaled 117,000 head, which is even with a week ago and below the 122,000 head noted a year ago.

Technical analysis: June cattle futures found support above yesterday's low and closed above yesterday's high. This is normally a positive chart pattern. However, this is third day of such a trading pattern that follows Monday's sharp selloff. As a result, a bearish flag may be forming. A close through the short uptrend line formed this week and a close under Friday's low at $134.37 1/2 could confirm the formation and point to a slide to the $133.00 area.


Feeder cattle

Price action: Feeder cattle futures closed 57 1/2 cents to $1.35 higher with the May contract leading gains.

Fundamental analysis: Feeder cattle futures traded higher, gaining strength through the day as corn futures reversed course and moved lower. Feeders also found support in today's USDA Supply & Demand Report, which boosted the average projected 2014 cash steer price by $5.50 to $147.50, suggesting there will continue to be strong demand for tight calf supplies.

Technical analysis: May feeder cattle futures surged above $180.00 and closed there for only the second time. The other close above this level came April 3. Futures have traded above $180.00 five times prior to today, making it a resistance area. It takes a close above the April 3 high at $180.60 to turn the area into support. The steep winter uptrend line offers support at about $177.90 tomorrow.

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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