Livestock Analysis (VIP) -- February 12, 2013

February 12, 2013 08:38 AM
 

Hogs

Price action: Lean hog futures ended 35 cents higher in the February contract while other months ended 25 to 87 1/2 cents lower, which was generally a high-range close.

Fundamental analysis: February lean hogs benefited from the $2-plus discount it holds to the cash hog index ahead of its Thursday expiration. Deferred months, on the other hand, were pressured about downtrending pork prices and the fact that this continues to cut into packer profit margins, limiting their demand for market-ready hogs.

However, pork demand typically improves around this time of the year; a surge in pork movement this morning could signal this is starting to get underway. This helped futures to settle well off their lows today.

Technical analysis: April lean hogs tested psychological support at $85.50 today, but left it intact and settled well off this level. Resistance is layered from the January low of $86.90 to the November low of $87.75.

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

Feed needs: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. Corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. Protein needs are covered in long July soybean meal futures at $388.00.

 

 

Live cattle

Price action: Live cattle futures closed 30 to 82 1/2 cents lower. That was just mildly below session highs in all but the front-month February contract, which ended mid-range.

Fundamental analysis: Cattle futures came under heavy pressure around mid-morning amid a combination of fundamental concerns and chart-based selling. The fundamental concerns are tied primarily to demand as packers are struggling to find a price where they can actively move product. With cutting margins buried deep in the red, traders are concerned the sluggish demand side of the market will continue to overshadow tight supplies near-term.

Cash cattle trade got started with light sales at $123 in Texas and Kansas following the sharp plunge in cattle futures this morning. That's down $2 from the bulk of last week's cash trade. Most feedlots are still holding out hope of getting no worse than steady prices for this week's supplies, although that now seems to be an awfully lofty target.

Technical analysis: For a second day in a row, April live cattle dropped below the January double-bottom at $129.45, but finished above that level. April live cattle futures are signaling a potential exhaustion tail on the daily chart, but must close above the downtrend drawn off the January swing highs to confirm a low. That trendline intersects at $131.53 1/2 Wednesday.

 

 

Feeder cattle

Price action: Feeder cattle futures finished 35 cents to $1.55 lower, which was a mid- to high-range close for the day.

Fundamental analysis: Feeder cattle plunged sharply lower to limit down at one point today amid heavy pressure from the live cattle market and on technical-based selling. Falling cash feeder cattle prices also weighed on futures. But the strong rebound in live cattle into the close allowed feeders to recover well off session lows.

Feeder cattle traders ignored weakness in the corn market today, although continued weakness could help feeders put in a short-term low.

Technical analysis: April feeder cattle futures plunged to a contract low today, but finished $1.52 1/2 above the new low and also avoided a contract-low close. To signal a short-term low has been posted, bulls must fill the Feb. 8 gap at $149.90.

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: 25% of 1st-qtr. corn needs are covered in long March corn futures at $6.87 and 25% of 2nd-qtr. Corn needs are covered in long July corn futures at $6.78 3/4. 25% of 1st-qtr. protein needs are covered in long March soybean meal futures at $395.30 and 25% of 2nd-qtr. Protein needs are covered in long July soybean meal futures at $388.00.

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