Livestock Analysis (VIP) -- February 10, 2014

February 10, 2014 08:38 AM


Price action: Lean hog futures finished narrowly mixed and anywhere from lower-range to high-range for the day.

Fundamental outlook: The premium February lean hog futures hold to the cash market with contract expiration at the end of the week mildly weighed on the lead-month contract today. Deferred futures favored a mostly firmer tone as USDA mildly cut its 2014 pork production forecast this morning. Pork production is still expected to increase from year-ago, but not as much as once thought due to porcine epidemic diarrhea virus (PEDV).

Cash hog bids were mixed today. Areas where supplies are tighter or packers are struggling to get animals to town due to inclement weather were steady to firmer. Hog movement the first half of the week will determine how aggressively packers need to bid for hogs late this week. Strong packer margins will generally keep the cash hog market support.

Technical outlook: April lean hog futures remain in the uptrend from the January low. Uptrending support drawn off the January and early February lows intersects around $94.03 tomorrow and is initial support, followed by the Feb. 3 low at $92.80. Tough resistance stands at the contract high of $96.45.

Hedgers: Carry all risk in the cash market for now.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.


Live cattle

Price action: Live cattle futures ended the day mixed, with February closing 30 cents higher and near session highs, while April through October futures ended 17 1/2 to 52 1/2 cents lower. Far deferred contracts closed steady to 17 1/2 cents higher.

Fundamental outlook: Indications the boxed beef market is working on a near-term low supported February futures, as did expectations that packer demand for cash supplies should be stronger this week due to only limited cash trade last week. Choice beef values firmed 22 cents this morning on solid movement, but of course, prices must remain stable this week to signal prices have returned to "value" levels.

This week's cattle showlist is up slightly from last week due to light cash trade seen last week, but packers are expected to begin bidding for cattle earlier rather than later in the week, which could help stabilize the cash market.

Technical outlook: April live cattle futures saw trade above Friday's high, but then softened. Today's high of $140.75 is initial resistance, followed by the Jan. 31 high of $141.20 to the contract high of $143.20. Support lies at last week's low of $138.65.


Feeder cattle

Price action: Feeder cattle futures ended 10 to 32 1/2 cents higher, which was near session highs.

Fundamental outlook: Futures were supported by tight supplies and weakness in the corn market, but buying was limited by a lack of strong buying in live cattle futures. March futures are trading at around a $2 discount to the cash index, which opens near-term upside potential slightly.

Technical outlook: Near-term boundaries for March feeder futures are support at last week's low of $166.55 and resistance at the $169.00 level all the way to the contract high of $170.67 1/2.

Hedgers: Fed cattle producers are long April $136.00 put options at $1.325 covering remaining 1st-qtr. and 50% of 2nd-qtr. marketings and are short the same number of April $144.00 call options at $1.525.

Feed needs: 25% of 1st-qtr. protein needs are covered in long March meal futures at $410.80.

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