Livestock Analysis (VIP) -- February 13, 2013

February 13, 2013 08:39 AM
 

Hogs

Price action: Lean hog futures were choppy again today, with February 22 1/2 cents firmer ahead of tomorrow's noon CT expiration. April hogs were 20 cents lower. The rest of the market was 10 cents lower to 20 cents higher.

Fundamental analysis: Lean hog futures didn't stray too far from unchanged, but the front-month contract still has some ground to make up ahead of tomorrow's expiration, as it ended the day at around a $1.50 discount to the cash index. April hogs will soon become the lead-month contract and are trading at around a $3 discount to the index. This signals traders have a negative near-term bias toward the cash market, which isn't surprising as packers are focused on improving negative cutting margins and have dropped bids each day so far this week.

Expectations are for additional cash weakness tomorrow, but traders are keeping a close eye on the pork cutout market as they anticipate values should soon find seasonal price strength as retailers focus on ham buying ahead of Easter.

Technical analysis: April lean hog futures briefly traded above yesterday's high but posted a low-range close. Near-term boundaries for the contract are support at yesterday's low of $85.50, with resistance at the top of the Feb. 7 gap area at $87.55.

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 settled at or near session highs and narrowly mixed for the day after posting moderate losses for most of the session.

Fundamental analysis: Futures faced pressure much of the day after light cash cattle trade took place at $123 yesterday -- down $2 from most of last week's trade. But some light short-covering returned as feedlots stood their ground and refused to sell additional cattle at those lower prices today; they feel signs of improvement in the boxed beef market yesterday and tighter showlist estimates this week justify at least steady prices.

This morning, boxed beef prices were mixed, but movement was strong. Also, considering expectations for cattle to hit a 10-year cycle high in 2013, some feel the downside has been overdone.

Technical analysis: April live cattle posted an inside day of trade, leaving strong support in place at yesterday's low of $128.30 and resistance at the psychological $130.00 mark, followed by the September low of $131.62 1/2.

 

Feeder cattle

Price action: Feeder cattle futures faced heavy followthrough selling today and ended $1.90 to $2.52 1/2 lower with deferred months leading losses.

Fundamental analysis: Concerns about slower demand for feeder cattle along with unprofitable margins for producers who have had to deal with lofty grain prices the past year continued to weigh on feeder cattle futures today. This pushed many months to new contract lows today.

Technical analysis: March feeder cattle futures gapped lower on the open to hit a new contract low of $140.72 1/2 today. This is strong support, followed by the psychological $140.00 mark. The contract is well overdue for a correction, however, as both the 9- and 14-day Relative Strength Index show the contract is deeply oversold. Former support at the January low of $144.65 is new resistance.

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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