Livestock Analysis (VIP) -- February 14, 2013

February 14, 2013 08:46 AM
 

Hogs

Price action: February lean hogs expired 20 cents higher at $87.67 1/2 at noon CT today. The rest of the market ended $1.12 1/2 to $1.52 1/2 lower for the day.

Fundamental analysis: The February lean hog contract benefited from efforts to keep it in line with the cash hog index as it expired today. But yesterday's $2.68 decline in the pork cutout market weighed heavily on other contracts. Besides indicating the product market has not yet put in a low, this also pulled packer profit margins deeper into the red. This, in turn, will keep the cash hog market steady to lower over the near-term.

Spillover from heavy losses in live cattle early this morning and sharp gains in the U.S. dollar index added to the negative tone. Plus, deferred contracts gapped lower on the open and took out key levels of support today, also encouraging some technical selling.

Technical analysis: April lean hogs gapped lower on the open and briefly traded through key support at the September low of $84.07 1/2, though the contract finished above this level. Thus, today's low of $84.05 is near-term support, followed by the June low of $82.25. Initial resistance is the top of today's downside gap at $85.75.

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 staged an impressive rebound around midday and settled 37 1/2 to 77 1/2 cents higher. Several contracts posted bullish reversals today.

Fundamental analysis: Live cattle futures faced heavy pressure this morning amid concerns about a possible furlough of meat inspectors at the start of March, which could halt meat exports. But ongoing improvement in the boxed beef market and the start of active cash cattle trade at $123 -- steady with trade earlier this week but down $2 from the bulk of last week's trade -- gave futures a boost. Traders are growing more confident a low may be in for the boxed beef market.

Several futures contracts dipped into technically oversold territory yesterday according to the 9-day Relative Strength Index. This also encouraged some technical short-covering today.

Technical analysis: April live cattle futures posted a bullish reversal today. Followthrough selling tomorrow would signal the market has put in a near-term low. Bulls will be eyeing the psychological $130.00 level, followed by the September low of $131.62 1/2. Today's low of $127.62 1/2 is strong support.

 

Feeder cattle

Price action: Feeder cattle futures posted a bullish reversal today, trading sharply lower this morning and firming after midday to settle $1.27 1/2 to $1.70 higher for the day.

Fundamental analysis: Feeder cattle futures faced heavy pressure most of the session amid demand concerns stemming from negative profit margins, beef export concerns and lofty feed costs. But the market reversed course after midday after live cattle futures firmed. The market has also been technically oversold for some time, so a price correction was well overdue.

Technical analysis: April feeder cattle futures posted a key bullish reversal today, gapping to a new contract low of $143.40 on the open and ultimately settling above yesterday's high. This gives bulls the near-term advantage. Followthrough buying would signal the market has put in a bottom. Next resistance is the January low of $147.25.

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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