Livestock Analysis (VIP) -- February 11, 2014

February 11, 2014 08:47 AM


Price action: February through August lean hog futures softened into the close to finish 27 1/2 to 75 cents lower. Far-deferred contracts ended 7 1/2 to 22 1/2 cents higher.

Fundamental outlook: February hogs were pressured by position squaring ahead of Friday's last trading day. The contract still holds around a $1.50 premium to the cash index, which raises the risk of followthrough pressure tomorrow. April lean hogs will soon have the responsibility of following the cash index more closely and holds around a $10 premium to the index.

But pressure on futures was limited by strength in the cash market, as bids were steady to $1 higher again today. Early expectations are for firmer bids again tomorrow, but for a leveling-off in the cash market the remainder of the week as packers get supplies secured.

Technical outlook: April lean hog futures posted a downside day of trade on the daily chart, but remained within the boundaries of the uptrend established from the January low. Near-term support lies at the February low of $92.80, with resistance at last week's high of $95.20. Key resistance is 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 closed 45 cents to $1.30 higher with the lead February contract leading gains and April futures finishing $1.00 higher. Futures closed high-range.

Fundamental outlook: Live cattle futures rose today on ideas wholesale beef prices may be posting a low along with cash cattle prices. Traders started the day with defensive attitudes on concerns rising showlists would press cash cattle prices lower. However, futures moved higher on reports of cash cattle trading at $141 in Kansas. That compares to last week's range of $140 to $142. This eased trader concerns about lower cash prices being paid this week.

The wholesale market gave mixed signals as Choice beef dropped $1.14 per cwt. in morning trading but Select beef moved 16 cents higher. Movement was a moderate 82 loads. But slaughter today is estimated at only 112,000 head, down from last week's 116,000 and 121,000 a year ago. This follows a slim kill of only 87,000 head on Monday. That has traders looking for steady to better bids Wednesday as packers look to rebuild runs.

Technical outlook: April futures found support at $140.00, just under yesterday's close, and surged through resistance in the $141.00 area to close at their highest level since Jan. 22. Resistance now rests at the contract high of $143.20.


Feeder cattle

Price action: Feeder cattle futures ended 72 1/2 to 92 1/2 cents higher but at their lows for the day.

Fundamental outlook: Feeder cattle futures moved higher on strength in live cattle futures and weakness in the corn market. Weakness in the U.S. dollar index also contributed to gains in feeder cattle futures today. The March futures contract narrowed its discount to the cash index to about 50 cents.

Technical outlook: March feeder cattle futures gapped higher at the open of trading and spent the remainder of the day attempting to fill the gap. Futures closed at the day's lows but failed to significantly fill today's gap. The inability to fill the gap sets the contract high at $170.67 1/2 as the upside objective.

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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