Livestock Analysis (VIP) -- February 15, 2013

February 15, 2013 08:47 AM
 

Hogs

Price action: Lean hog futures faced pressure most of the day, but futures improved into the close to settle narrowly mixed. The market posted heavy losses for the week, however.

5-day outlook: The pork market continued its slide this week, keeping packer cutting margins deep in the red. Until the product market puts in a low and packer margins improve, the cash hog market and futures will struggle to strengthen.

30-day outlook: Reports meat inspectors may be furloughed for 15 days next month unless the across-the-board spending cuts slated for March 1 are avoided shook up the market this week. While this is disputed, how this situation plays out will be watched with the calendar flip to March. Meat cannot be exported without an inspection seal. Meanwhile, Russia's ban on U.S. meat imports has been a source of light pressure on the livestock markets. This could limit the seasonal uptick in pork demand as retailers begin stocking up on Easter hams.

90-day outlook: Lean hogs typically post a seasonal rally into summer as pork production slows and grilling season gets underway. But this rally could be limited as USDA projects 2013 production will be up from 2012 levels and exports will be down slightly from year-ago.

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.

 

 

Cattle

Price action: Live cattle enjoyed followthrough from yesterday's gains to end slightly higher for the week. But the market still has a lot of work ahead of it to signal a major low has been posted. Feeder cattle futures also saw followthrough buying today but ended lower compared to last week's close.

5-day outlook: Key to building on late-week gains in live cattle futures is traders' perception of demand. The boxed beef market is still searching for a seasonal low, which raises questions about demand. Also putting demand into question this week were concerns about a meat inspector furlough, possibly beginning March 1. If realized, it could halt beef exports.

30-day outlook: While Russia has basically halted its purchases of U.S. beef, Japan should soon be ramping up purchases. A pick-up in business to Japan would help the market secure a low and give bulls renewed confidence about demand.

90-day outlook: The Cattle Inventory Report reflected producers have begun to hold back heifers, but not aggressively due to the lingering drought in the Central and Southern Plains. Cattle supplies are tight, which is bullish for live cattle futures over the long-term.

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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