Livestock Analysis (VIP) -- February 12, 2014

February 12, 2014 08:47 AM


Price action: Lean hog futures saw a choppy day of trade and ended mixed. The February through May contracts closed 10 to 42 1/2 cents higher while June through October futures slightly lower.

Fundamental outlook: Lean hog futures saw some bull spreading action today. Nearby contracts benefited from improvement in the product market as well as a steady to higher cash hog market. The pork cutout value rose $1.00 this morning and, even more impressively, movement picked up to 282.38 loads. Traders remain hopeful lofty beef prices and Easter ham demand will keep the product market pointed higher.

But Monday's Supply & Demand Report pointed to an increase in pork production for 2014. This pressured deferred months, though the impact of the porcine epidemic diarrhea virus (PEDV) remains a key unknown.

Technical outlook: April lean hogs saw two-sided trade today, and the market ended mid-range for the day, providing little in terms of direction for tomorrow. Resistance remains at last week's high of $95.20, while support is at the bottom of last week's big upside gap at $93.35.

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 faced profit-taking today to end 40 to 70 cents lower in all but the far-deferred contracts that ended with much lighter losses.

Fundamental outlook: A stronger open was met with selling interest, as traders are concerned that high beef prices are being met with consumer resistance. But with no technical chart damage, traders could return on the buy side tomorrow and focus on the tight supply situation.

With this week's market-ready supplies up from last week and beef prices softer, expectations are building for $1 to $2 lower cash cattle trade with the last established trade two weeks ago of $144 to $145. The good news is beef movement is picking up on the drop in prices, which could help the market solidify a near-term low. But so far, a low has not been confirmed.

Technical outlook: April live cattle futures fell from this morning's high of $141.80, which is initial resistance. Contract-high resistance is at $143.20, with support at the February low of $138.65. Bulls still hold the technical advantage in this market, but it is looking more and more like a mature bull market.


Feeder cattle

Price action: Feeder futures saw spillover from live cattle to finish 25 to 37 1/2 cents lower. Futures ended near opening levels, which was near the daily lows.

Fundamental outlook: Futures were under pressure throughout the day despite a softer tone in nearby corn futures. Price action was largely driven by spillover from live cattle futures, which is likely again tomorrow. March futures are trading at a slight discount to the cash index, which stands at $169.60.

Technical outlook: April feeder futures posted an inside day down on the daily chart. The low-range close gives bears more momentum heading into tomorrow's open, but bulls still hold the overall technical advantage.

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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